The Inflation Reduction Act, enacted on Aug. 16, 2022, is the largest public-sector investment in clean energy in United States history. It provides a wide range of tax credits and other incentives for businesses, including health care organizations, to invest in assets that promote decarbonization efforts. For the first time, tax-exempt health care organizations, including government entities, can monetize these tax credits through direct refunds from the Internal Revenue Service.
Some examples of how providers and health care organizations could earn tax credits from the IRA in terms of clean energy investments include:
- Buying electric vehicles to reduce transportation costs and emissions
- Installing solar panels to reduce electricity bills
- Upgrading to geothermal heat systems to reduce reliance on fossil fuels
For-profit health care organizations that are planning to or are already investing in qualified clean energy projects will have the option to transfer (sell) tax credits earned with these investments to another taxpayer for cash.
According to the Congressional Budget Office, an estimated $213 billion of tax credits could be transferable for taxpaying entities, which may create a new demand from a variety of investors. As the cost of capital continues to rise with elevated interest rates, selling a tax break provides short-term liquidity which can be attractive for private equity investors in the health care space.
Below is a summary of the 12 major types of tax credits in the IRA, 11 of which are transferable.
The takeaway
Health care organizations, whether for-profit or tax-exempt, have significant financial incentives to capitalize on the tax credits available from the IRA when investing in clean energy assets. These efforts could improve the long-term health of physical assets used to enhance patient experience and promote decarbonization efforts.
Contributor: Craig Gaw, RSM US LLP
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