Healthcare systems are ramping up investments in renewable energy initiatives as a key component of their commitment to environmental sustainability and decarbonisation goals. However, as they integrate these renewable energy projects into their broader revitalisation strategies, many healthcare organisations may be missing out on significant cost savings available through Inflation Reduction Act (IRA) tax credits, says Laura Cataldo from Chicago-based accounting firm Baker Tilly. 

IRA tax credits and their importance to the healthcare industry

The IRA is the largest energy incentive effort in US history. 

“Among other healthcare-related benefits, the IRA provides unique opportunities for both tax-paying and not-for-profit healthcare entities to secure tax credit funding through direct payments for qualifying clean energy and efficiency projects,” explains Laura. “Eligible projects receive a 6% baseline tax credit, but by meeting additional criteria such as prevailing wage, apprenticeship and domestic content requirements, organisations can access enhanced tax credits that could offset up to 70% of their project costs.”

Hospitals, health systems, senior living facilities and other healthcare provider organisations can take advantage of tax credits for facilities that are currently under construction, projects on the brink of breaking ground, or those planned for future development.

Tax credits can apply to projects beginning before January 2025 that involve: 

• Combined heat and power property 

• Solar panels 

• Electrochromic glass 

• Energy efficient buildings 

• Waste energy recovery property 

• Ground or ground water to thermal energy property 

• Electric vehicle (EV) charging stations 

• Energy storage technology (i.e. batteries) 

How healthcare organisations can receive bonus credits

Most projects that qualify for the baseline IRA-related clean energy credit are also entitled to, or eligible to apply for, one or more of the following bonus credits or adders.

Prevailing wage and apprenticeship (PW&A)  

Projects that meet the IRA’s PW&A requirements can qualify for a 5x multiplier on their 6% base credit, making it the most substantial bonus credit available under the IRA. However, complying with PW&A requirements to receive the full 30% tax credit can be challenging. 

“The IRA mandates adherence to three tiers of apprenticeship requirements, with penalties for noncompliance. To effectively leverage these opportunities and navigate the complexities of PW&A standards, it is advisable to seek external expertise. Meeting the PW&A requirements also impacts the other bonus credits,” Laura says. 

Domestic content  

Projects that fulfil PW&A requirements can also qualify for a domestic content credit, enabling project owners to increase their tax credits by up to an additional 10% by using materials that comply with domestic content standards. 

“This entails ensuring that all structural steel and iron are sourced within the U.S., that manufacturing processes occur domestically and that all components of the manufactured products originate from U.S. sources.”

Energy community  

“Projects within an energy community may also qualify for an additional 2-10% bonus credit if they meet the clear, detailed IRS requirements,” Laura continues. 

Essentially, for a project to qualify for an energy community bonus it must be located either in a brownfield site, in or adjacent to a census area that has had a coal mine close, or in a region whose economy is, or has been, overly reliant on the fossil fuel economy.   

Environmental justice for solar and wind  

“Projects located in areas below the poverty line or those that allocate a portion of their energy savings to benefit low-income populations may also be eligible to apply for an additional 10-20% bonus credit,” she says.

How healthcare organisations can start taking advantage of maximising IRA tax credits

Laura continues: “Organisations seeking to take advantage of IRA-related tax credits need to first understand what credits are available to them and how these credits fit with the organisation’s overall capital project plans.”

To get started, there are a few key initial steps:

1. Review your organisation’s deferred maintenance plan to identify past, current, or future projects that include energy efficiency, renewable energy, or other components eligible under the IRA.
2. Recognise the significance of direct pay tax credits, especially for tax-exempt organisations that were previously ineligible for such credits before the IRA.
3. Re-evaluate feasibility assessments for potential projects and develop a strategic plan for those you intend to pursue.
4. Collaborate with your facilities team to formulate a funding strategy that aligns project financing with your organisation’s sustainability initiatives.

What else healthcare IRA tax credit seekers need to know

IRA-related energy project credits are nuanced and compliance to maximise them can be complex. Laura is clear that there are a few key considerations healthcare organisations need to be aware of when seeking IRA-related energy project credits.  

“First, healthcare organisations using tax-exempt funding for energy projects are required to deduct 15% from their eligible IRA-related tax credits,” she explains. “Another key consideration is determining whether qualifying projects also qualify for state-level programs and incentives. Understanding the available incentives beyond IRA-related credits and how they interact is essential for maximising your project’s benefits.”

Timing is also a crucial factor — knowing when to claim credits and aligning your project financing accordingly is essential. Currently, eligibility for certain credits is based on the ‘green’ technology used, but starting January 1, 2025, projects will qualify based on the carbon emissions they reduce. This shift makes the timing of a project’s start date a significant consideration with important implications.

“Finally, it’s essential to prioritise compliance with bonus credit requirements,” Laura shares. “Project owners should ensure that contracts with contractors include these provisions and verify that materials are sourced from manufacturers capable of providing domestically produced products to meet these critical thresholds. Remember, the responsibility for compliance with the IRS ultimately falls on the owner of the energy property project.”  

As with all tax-related credits and incentives, the details are critical. It’s highly recommended to work with an experienced advisor who can guide you through capital planning and help ensure your project secures the maximum IRA credits available while also maintaining high levels of assurance and compliance.

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