A new building or renovation is a significant investment, and funding opportunities or financial incentives go a long way in improving a project’s feasibility. In our home state of Iowa, owners can take advantage of several funding opportunities at the federal, state, and local levels.
These opportunities include:
- Tax Increment Financing (TIF)
- Federal Historic Tax Credits
- Brownfield and grayfield tax credits
- 179D tax deduction
- Iowa Commercial New Construction Program
We have worked with owners who have used each funding method, giving us a thorough understanding of their requirements and processes. Although not every opportunity will apply to your project, this article will help you better understand your options.
5 Funding Opportunities for Building Projects in Iowa
1. Tax Increment Financing (TIF)
Tax Increment Financing (TIF) is a popular funding method in cities hoping to stimulate economic growth. It’s designed to subsidize redevelopment, infrastructure, or community improvement projects by diverting future property tax revenue increases.
Municipalities can allocate TIF in one of two ways. First, they may offer up-front cash to fill a funding gap. After construction, the owner pays back the city’s investment through the property’s increased taxes.
Tax rebates are the other option. With this approach, a municipality pledges the difference between the pre-development taxes and the taxes it expects to receive after the project’s completion. Property taxes are “frozen” for a specified period (usually 12-20 years), and the municipality rebates the difference between the previous and current tax rates.
Generally, TIF financing is only offered in specific areas called “TIF districts” where a municipality hopes to stimulate development. When awarding funding, municipalities may stipulate requirements related to sustainability, historic preservation, or cultural opportunities. Ultimately, the city wants to promote projects aligning with its long-term goals.
Both private developers and owner-operators can take advantage of TIF. The city may award funding to mixed-use developments that increase the city’s tax base or businesses that bring new jobs to the area.
In some areas, mixed-use developments may be eligible for TIF.
When planning your project, determine if your city offers TIF and consider selecting a site within a TIF district. Your architect can help you align your project with the city’s goals and apply for funding.
2. Federal Historic Tax Credits
For renovations or adaptive reuse projects, federal historic tax credits can be an effective funding source. The program—called the Federal Historic Preservation Incentive Program—promotes the redevelopment and preservation of aging structures.
While the National Park Service (NPS) administers the program, the Internal Revenue Service (IRS) oversees its financing. These federal agencies will work with your local State Historic Preservation Office (SHPO) which maintains historic records, reviews applications, and communications with the owner/design team.
The program offers a 20% tax credit for work related to the operation of the building, including:
- Architectural and engineering fees
- Site survey fees
- Development fees
- Construction-related costs
- Plumbing, electric, heating, and cooling cost
Other costs—like those related to land acquisition or Future, Fixtures, and Equipment (FFE)—are not included.
To receive tax credits, buildings must be “certified historic structures.” This means they are either listed on the National Register of Historic Places or are considered a “contributing resource” to a registered historic district. Depending on the area, the NPS may specify a period of historic significance.
Certified Historic Structures, like Fort Des Moines, can apply for tax credits.
Applying for federal historic tax credits is a three-step process, which involves determining the building’s eligibility, submitting a plan description, and evaluating the project’s financial readiness. Owners can expect to make upfront investments in design work, drawings, and historical research before applying for the program.
While effective, the program only applies to a subset of projects. Not every aging structure qualifies for the program, and owners may need to explore alternative options.
3. Brownfield and Grayfield Development Tax Incentives
For rehabilitation projects in Iowa, brownfield and grayfield development tax incentives offer another funding opportunity.
Brownfields refer to previously developed properties that contain hazardous materials or substances. Such properties can include former gas stations, dry cleaners, and factories.
Grayfields, on the other hand, are vacant, blighted, or underutilized properties. Often, state governments incentivize development in these areas to increase tax bases, minimize urban blight, and reduce urban sprawl.
Brownfield development projects in Iowa can receive a tax credit for up to 24% of the project’s qualified expenses. If the project meets green building standards, tax credits increase to 30%. Similarly, grayfield projects can receive a tax credit equal to 12% of the project’s qualified expenses or 15% for meeting green building standards.
Brownfield and grayfield development may not fit every project, but with funding sources available, these sites are worth exploring.
4. The 179D Tax Deduction
At the federal level, Iowa building owners can utilize financial incentives for green design. One of the most popular and effective programs is the 179D tax deduction.
The program began in 2005 to reduce the built environment’s energy consumption and expanded in 2022 under the Inflation Reduction Act. Available to commercial buildings and multifamily developments over four stories, it provides tax deductions for property outlined in the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) 90.1 Standard.
This property includes:
- Interior lighting systems
- Heating, cooling, ventilation (HVAC), and hot water systems
- Building envelope systems like windows and roofing
Under the current program, a base deduction with a sliding scale starts at 54 cents per square
foot for buildings meeting a 25% reduction compared to the ASHRAE 90.1 standard. In other words, the building must perform 25% better than the current ASHRAE baseline.
Retrofit projects can compare their performance to the building’s previous Energy Use Intensity (EUI) rather than the ASHRAE baseline. Every percentage point beyond 25% allows for a two-cent-per-square-foot deduction, maxing at $1.07 per square foot.
The program also sets standards for prevailing wages and apprenticeship programs. For projects meeting these standards, the sliding scale starts at $2.68 per square foot for a 25% reduction. Every additional percentage point allows for an 11-cent-per-square-foot deduction, with a maximum amount of $5.36 per square foot for a 50% reduction.
Private owners can receive deductions for energy-efficient glazing systems.
To receive a tax deduction, a third party must verify the project’s performance. Your architect can help you find an energy consultant to visit the site and determine the building’s energy use intensity.
Investing in energy-efficient design reduces the long-term costs of building ownership. While some systems and design measures increase a project’s initial cost, you are likely to see a quick return on investment through energy savings. The 179D tax deduction makes your initial investment more feasible by offsetting the cost of high-performance glazing, insulation, and mechanical systems.
5. Iowa Commercial New Construction Program
Some Iowa building owners can also use the Commercial New Construction Program. Created in Partnership with MidAmerican Energy, Alliant Energy, and Willdan, the program offers complimentary design assistance and rebates for improved energy performance.
Willdan, an energy consulting firm, facilitates the program and works with your design team to find customized solutions for your project. Their expertise can help you understand the life-cycle costs and payback periods for different systems, helping you weigh your options. Rebates depend on the outcomes achieved.
Qualifying projects must be new construction, an addition, or a major renovation with a mechanical system replacement. They must also be over 5000 square feet. Additionally, the program is only available to MidAmerican or Alliant Energy customers.
Like the 179D tax deduction, the Iowa New Construction Program can make investments in energy-efficient design more feasible. While rebates help offset construction costs, high-performance systems reduce the long-term cost of ownership.
What Are Your Next Steps?
Taking advantage of federal, state, or local funding opportunities can improve your project’s feasibility, fill financial gaps, and lower risk. It can also make investments that lower the long-term costs of building ownership—like high-performance mechanical systems—more feasible.
The funding methods outlined here do not apply to every project. While TIF is only available in designated districts, Federal Historic Tax credits only apply to certified historic structures. Other programs, like the Iowa Commercial New Construction Program, only apply to MidAmerican or Alliant Energy customers.
Exploring these funding opportunities, however, can help you better understand your options. Your architect can research funding opportunities in your area and help you determine if your project qualifies.
Before starting a building project, owners should understand the costs they will encounter. Get started by reading about project and construction costs and how they differ.