EV Chargers and Tax Treatments in CRE

Electric vehicles are moving on to eventually take over the auto market, no matter how attached drivers are to their gasoline engines.

It’s a bit of a forced march — or maybe a drive — but one that has some interesting welcome tax benefits and implications, says George Livanos, CPA and partner at SAX LLP.

A number of aspects of the Inflation Reduction Act of 2022 open the possibilities of various tax credits — dollar-for-dollar reductions of income tax — that can add substance to a company’s bottom line. And on April 10, the Internal Revenue Service released guidance on how to use the regulations.

First, the impact on REITs, which have an inherent difficulty with tax benefits because at least 75% of their gross income has to be from restricted sources, like real property rents, interest on obligations secured by real property, dividends from other REITs, or gain from the disposition of owned property. And then they have to return at least 90% of taxable income as shareholder dividends. The result is limited income to tax, which reduces the effective value of tax credits.

But Livanos says that the latest IRS guidance makes clear that the direct-pay options for applicable entities include REITs — as well as some other ownership and investment structures. “That would allow them to claim the credit which is 25% basis of the qualified property,” he says. “That goes a long way to create liquidity. These projects are very capital intensive.”

By having a way to obtain cash payments back that don’t have to offset taxes, investors such as REITs can take the cash and reinvest it.

“Let’s say it’s office. It could be retail, it could be industrial,” Livanos says. “The EV charge stations are effectively providing electricity to tenants. REITs are in the business of generating money and they want to be in the position of creating more revenue sources so they can boost funds from operations. When they do that, the equity of the stock on a price per earnings basis goes up, the yield goes up, and all parties connected to the process benefit.”

This includes tenants, whether consumers or businesses, because they can now have access to convenient charging stations.

But these are credits that need expert advice to navigate the specifics, as there are a number of highly specific requirements.