ETI Blog

The real estate sector contributes 42% of global carbon dioxide emissions, a figure that’s turning heads in the industry and fueling a growing interest in sustainable building practices. By 2034, energy-efficient construction is projected to increase by 68%, showing that sustainability is no longer niche but rather tipping into mainstream. Although going green can typically require more upfront capital, property owners and businesses are realizing tangible, bottom-line benefits from long-term operating savings, higher rent premiums and most recently, expanded energy-efficient tax credits. Architects can help clients maximize their return on investment by designing with these tax incentives in mind to lower overall project costs.

Architects at the Intersection of Design and Savings
While keeping up with tax law is a moving target, architects should stay apprised of ongoing incentives to create value at the intersection of sustainable design and cost savings. By incorporating design elements that meet tax credit eligibility requirements from the outset, architects can lower taxes and free up more cash for clients for operations, investment and growth. Fully leveraging these credits, however, requires strategic planning from the earliest stages of a project, not come tax time.

To qualify for many of these energy-efficient tax credits, specific inspections and certifications must be scheduled with a third-party commissioning agent at various design and construction milestones to verify compliance. Energy modeling in the design phase and performance testing during construction help measure energy efficiency and confirm whether a project meets the required thresholds for tax incentive programs. A pre-drywall assessment also may be required to inspect insulation, air sealing and system efficiency before walls are enclosed. Because these steps cannot be conducted retroactively, missing them can mean forfeiting valuable cost-saving opportunities.

Whether designing new construction in Chicago, planning a multifamily renovation or remodeling a suburban home, understanding these incentives can unlock savings and benefits for your clients.

Tax Incentives for Developers and Commercial Property Owners

While energy-efficient tax credits have been around for years, the Inflation Reduction Act (IRA) expanded and extended many of the current incentives available to developers and commercial property owners, designed to accelerate the adoption of clean energy and sustainable practices.

1. 45L Energy-Efficient Home Credit for Residential Builders and Developers
Builders and developers of single-family homes, townhouses and low-rise multifamily housing in Chicago who construct or significantly renovate energy-efficient residences can receive between $500 and $5,000 in tax credits for homes acquired on or after Jan. 1, 2023 through Dec. 31, 2032. To receive the maximum credit amount of $5,000 per dwelling unit, qualifying owners must now comply with strict criteria, including 1) Energy Star requirements; 2) Zero Energy Ready Home (ZERH) requirements; and 3) prevailing wage requirements for multifamily dwelling units. 

In addition, builders and developers must own the property through construction to sale and only claim the credits for the number of actual homes or units sold during the tax year being filed.

See the breakdown of eligibility below.

Single-family homes:

• 2,500 – Energy Star program requirements fulfilled
• $5,000 – Energy Star program requirements and ZERH program requirements fulfilled
  

Multifamily homes (per dwelling unit):

• $500 – Energy Star Multifamily New Construction National Program requirements fulfilled
  • $2,500 if the prevailing wage requirements are also met
• $1,000 – Energy Star Multifamily New Construction National Program requirements and ZERH program requirements fulfilled
  • $5,000 if the prevailing wage requirements are also met

Prevailing Wage Requirements:

• $500 – Energy Star Multifamily New Construction National Program requirements fulfilled

2. Section 179D Energy-Efficient Tax Deduction for Owners of Commercial and Large Multifamily Properties
Owners of commercial construction projects in and around Chicago can take advantage of the expanded 179D tax deduction, which now offers a higher per-square-foot deduction for energy-efficient upgrades in commercial and multifamily new construction and renovation projects. In 2025, deduction amounts can be as high as $5.81 per square foot when prevailing wage and apprenticeship requirements are met as well. For larger projects, these savings can add up quickly. 

To be eligible for the tax deduction, projects must meet American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE) standards and demonstrate at least 25% energy savings achieved through interior lighting, HVAC systems, hot water systems and/or building envelope improvements. The IRA also now allows building owners to reclaim the deduction on the same building every four years for additional upgrades.

A large portion of commercial buildings are owned by tax-exempt entities, however, raising the question of how these projects can still benefit from 179D. To keep sustainability a priority for these buildings, the IRA now grants tax-exempt organizations the ability to allocate these tax deductions to their construction partners, such as architects, designers and engineers, incentivizing more professionals in the built environment to continue driving sustainability forward.

3. Investment Tax Credit for Commercial and Multifamily Construction
The Investment Tax Credit (ITC) provides businesses, rental property owners and tax-exempt organizations with a 30% tax credit of the cost of installing eligible renewable energy systems, including solar panels, wind turbines, geothermal heat pumps, fuel cells and battery storage on commercial buildings and multifamily rental properties. Unlike similar homeowner credits for renewable energy systems outlined below, businesses can depreciate the cost of the investment.

Starting in 2025, eligibility applies to any zero-emission electricity-generating project and phases down from 30% in 2032 to 26% in 2033, 22% in 2034 and eventually expiring in 2036.

Tax Incentives for Homeowners

Energy-efficient tax credits are also extended to owners who integrate sustainable features into their homes. Whether designing for residential construction, major home remodels, apartment renovations or historic retrofits, architects should be familiar with the following credits to help owners reduce expenses associated with ecofriendly builds.

1. Residential Clean Energy Credit

Similar to the ITC, the Residential Clean Energy Credit (RCEC) provides a 30% tax credit for homeowners of single or owner-occupied multifamily properties who install renewable energy systems such as solar panels, wind turbines, geothermal heat pumps, fuel cells and battery storage on their primary or secondary residences. Rental properties are not eligible unless the property owner lives there part of the year, in which case they can claim a prorated credit based on personal use.

Unlike other energy credits, there is no dollar cap on the amount that can be claimed. The incentive remains available through 2032, with the credit gradually phasing down to 26% in 2033 and 22% in 2034, before continuing to phase out until it expires in 2036.

2. Energy-Efficient Home Improvement Credit

With the Energy-Efficient Home Improvement Credit, homeowners looking to add or upgrade energy-efficient features in their single-family homes or owner-occupied multifamily residences can see up to $1,200 per year in cost savings for upgrades such as doors, windows, insulation, cooling and heating, electric panels and home energy audits. An additional $2,000 per year is available for heat pumps, biomass stoves and boilers. 

Earlier versions of this tax credit had a lifetime cap; however, the IRA now offers annual eligibility, allowing homeowners to spread out improvements over multiple years and maximize their savings on upgrades, improve energy performance and increase property value gradually over time.

Unlocking Energy-Efficient Incentives in Commercial, Multifamily and Residential Construction Projects

As a general contractor in Chicago and surrounding towns—an area known for its commitment to sustainable practices—we’ve seen firsthand the positive impact energy-efficient tax credits have had over the years.

With broader eligibility and higher deductions, recent expansions have motivated owners of commercial, multifamily and residential construction projects to adopt sustainable practices at a faster rate. Major companies are making bold sustainability commitments, homeowners are recognizing the long-term financial value of ecofriendly features and multifamily property managers are watching rent premiums rise for greener, high-performing buildings.

In a market increasingly driven by sustainability, architects have an opportunity to influence early design decisions that can help clients capitalize on energy-efficient materials, building systems and tax credits to secure long-term value.

If you are interested in learning more about ETI’s sustainable construction practices, give us a call at (773) 299-6574 to discuss your next project, or request a quote online, and we’ll get right back to you.