How the Inflation Reduction Act Will Affect the Real Estate Industry
What Does the Inflation Reduction Act Include?
If you are unfamiliar, the Inflation Reduction Act (IRA) was a Senate-introduced $430 billion spending package. It cleared the Senate on August 7, 2022, and is expected to clear the House on August 12, 2022. President Biden is also expected to sign the bill into law as soon as possible.
The bill was introduced as a compromise for the much larger Build Back Better legislation. The IRA was introduced by Senators Joe Manchin (D-WV) and Chuck Schumer (D-NY) to help combat inflation, growing climate threats, and specific medical costs. So, what exactly is in the bill?
Climate Measures
In the IRA, $369 billion is allocated toward a down payment on domestic clean energy infrastructure and deficit reduction to bring our country’s carbon emissions down 40% by 2030. The investment is primarily aimed at helping disadvantaged communities, increasing renewable energy infrastructure, improving energy storage, and more.
Part of this transition will be facilitated with tax incentives for homeowners, businesses, and others. This should help investors and homeowners reduce their utility costs in the coming years.
Minimum Tax Rates
One of the key features of the bill includes closing the deficit with a new minimum corporate tax rate of 15%. This was mostly aimed at large tech companies and other industries ridden with tax avoidance. This should have little to no effect on REITs or small-scale real estate developers.
This is great news for real estate investors. It means you should not expect any additional taxes at the federal level after this legislation. If anything, you may see tax breaks!
Lowering Healthcare Costs
While this is the least likely to affect investors, there were some provisions in the IRA aimed at lowering healthcare costs nationwide. However, this should have a ripple effect in curbing overall inflation, which will help investors of all scales and across all industries.
How Will This Bill Affect Home Owners and Investors?
Whether you want to buy a house for yourself and your family or grow a real estate empire, this bill has something for you. The bill is expected to pass soon, and the effects will begin taking place in 2023.
For that reason, it’s best to know what’s coming so you can prepare. Here’s how the Inflation Reduction Act will affect homeowners and investors.
Utilities
Homeowners and home buyers will see some changes after this plan goes into effect. This is especially when it comes to utility bills, which are rising all across the country.
Due to inflation and rising costs of fossil fuels, energy bills have seen all-time highs in 2022. If you’re a landlord paying utilities for multiple units, these added costs can make a major difference. Fortunately, further investments into renewable energy should help dramatically reduce these costs.
Further tax incentives should save homeowners money on their energy costs and the ability to purchase residential solar. If you decide to go green at your property, you could receive massive tax rebates. On top of that, you will earn clean energy credits from your utility, which can save you money year-round.
While not all homes are compatible with rooftop or residential solar, there are alternatives. Part of these measures includes investments and incentives for community solar and wind farms. These feed directly into our energy grid and save owners money on their energy bills.
Finding Tenants
Economists suggest that the IRA will dramatically reduce inflation and help working people. If you are a first-time landlord looking to attract new tenants, a more stable economy will only serve as a boon to your business!
Also, landlords will have more freedom to offer certain perks. With lower costs and the upcoming tax incentives, having solar panels, including utilities in the rent, or offering on-site EV charging can help attract new tenants!
Improved HUD Housing
If you offer affordable housing as a landlord, you may be eligible for further grants or incentives. You may also see improvements to infrastructure that affect your property. These changes include:
HUD-led program to improve water and energy efficiency ($1 billion)
Consumer home energy rebate programs for retrofitting and energy efficiency ($9 billion)
Incentivize state and local governments to adopt more efficient energy codes ($1 billion)
There are also changes and provisions to ensure that energy credits do not negatively impact disadvantaged communities.
Reducing Interest Rates
While these effects are certain to take time, the IRA should help to lower interest rates in the coming years. The Federal Reserve has raised interest rates to unprecedented levels in 2022. They are anticipated to continue rising throughout the remainder of the fiscal year.
However, there is now a clear end in sight. Assuming the IRA works as planned to curb inflation, we should see a reduction in interest rates in the coming years. This is great news for new homebuyers and investors!
Start Investing Today
As you can see, the Inflation Reduction Act is set to help investors and ordinary homeowners in the coming years. This means that now is a better time than ever to start investing in real estate. Reducing taxes and inflation will help investors of all scales, so get started today!