Tax Incentives and Structuring Considerations for Data Centers

AI-scale data centers are capital-intensive projects where tax structuring decisions made early in the development cycle can materially affect after-tax returns, project economics, and exit flexibility. 

This CLE webinar provided a practical overview of the federal, state, and structuring considerations that commonly drove tax outcomes for data center owners, developers, and investors. We addressed energy-related tax incentives applicable to data center power infrastructure, including investment and production tax credits for on-site generation and battery storage, bonus credit mechanics under the Inflation Reduction Act as modified by the One Big Beautiful Bill Act, and the impact of newly released foreign entity of concern restrictions on credit eligibility and equipment sourcing decisions. We also covered entity and real estate structuring choices, including when REIT and private REIT structures might be viable for data center assets, the treatment of service income through taxable REIT subsidiaries, and how fund and joint venture structures interacted with diverse investor tax profiles.

Additional topics included cost recovery planning through cost segregation and permanent 100% bonus depreciation, Qualified Opportunity Zone and Qualified Rural Opportunity Fund structuring for data center development—particularly as new zone designations took effect—and state and local incentive programs that frequently influenced site selection. For projects involving non-U.S. capital, we briefly addressed FIRPTA planning and the domestically controlled REIT framework.

Attendees gained a deal-oriented framework for identifying available tax benefits and aligning structuring decisions with project financeability and long-term asset value.

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