Energy Tax Incentives
>>> REAL BENEFITS FROM DEDUCTIONS
The commercial buildings’ deduction is a very important tax benefit for building owners. Building owners can reduce operating costs and increase profitability and competitiveness by investing in the highest levels of energy-efficient lighting with the added benefit of deducting up to the entire expense of new energy efficient assets that are placed into service.
OVERVIEW
Section 1331 of the ENERGY POLICY ACT OF 2005 provides for and allows a deduction for energy efficient commercial buildings that reduce annual energy and power consumption by 50% compared to the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) standard. The deduction equals the cost of energy efficient property installed during construction, with a maximum deduction of $1.80 per square foot of the building. Additionally, a partial deduction of $.60 per square foot is provided for building Sub-Systems.
Partial Deduction
Owners of new and existing buildings (placed in service prior to the date of enactment) may earn a partial deduction of $.60 per square foot per “system” for upgrading one or two major building Sub-Systems. These deductions apply to new buildings placed in service between the date of enactment and December 31, 2007 OR retrofits to existing buildings during the same time period.
Method of Computation
The Performance Rating Method (PRM) must be used to compute the percentage reduction in the total annual energy and power costs with respect to combined usage of a building’s heating, cooling, ventilation, hot water and interior lighting systems as compared to the minimum requirements.
Methodology
ETS will analyze, calculate, make recommendation and/or Certify subject property(ies) that reduce annual energy and power consumption (combined power consumption) by 50% or qualifying appropriate Sub-System qualifying percentages. The deduction equals the cost of energy-efficient property installed or planned during construction or rehabilitation – with a maximum of $1.80 per square foot of the building. A partial deduction of $.60 per square foot may be realized and provided for Sub-Systems of the building.
1. Initial data is gathered to evaluate the potential tax savings for implementation of an Energy Efficiency Study and Certification.
2. Once a Letter of Engagement is authorized engineering staff will visit the subject site/building(s).
3. A physical inspection of the installed equipment must occur. Should the assets be proposed, a review of the plans and the specifications will occur. Once the assets/equipment is installed a site visit must occur.
4. Prescribed calculations will be made on the energy usage and proposed usage.
5. The calculations, the Certification of approved and qualifying assets/equipment will be completed and the Study reflecting the allowable deductions will be delivered to taxpayer/property owner.
You may be eligible for a tax deduction of up to $1.80 per square foot for improving the energy efficiency of your existing commercial buildings or designing high efficiency into new buildings.
The Energy Policy Act of 2005 includes a tax deduction for investments in “energy-efficient commercial building property” designed to significantly reduce the heating, cooling, water heating, and interior lighting energy cost of newer existing commercial buildings. To be eligible, the energy-efficient commercial building property—such as a state-of-the-art lighting system—must be placed in service between January 1, 2006 and December 31, 2008.
Good news, on October 3rd, 2008, the energy bill was extended to December 31st, 2013.
To qualify for the full deduction, a building owner or tenant must make investments designed to reduce energy costs by 50% or more. A partial deduction of $0.60 per square foot is available for investments in one of three systems—lighting; heating and cooling; or building envelope— designed to reduce energy costs by 16 and 2/3% (i.e., one-third of the 50% requirement).
Tax deductions reduce your overall taxable income with the value of the deduction dependent on your tax bracket. Tax incentives, such as the ones provided for consumers in the 2005 Energy Policy Act, reduce the amount of tax you owe dollar for dollar.
>>> Who Can Benefit from the Deduction?
The person or organization that pays for construction is generally the recipient of the deduction. This is usually the building owner, but for some HVAC or lighting efficiency projects, it could be the tenant. For government-owned buildings, the person primarily responsible for designing the building or project may be able to claim the deduction.
>>> How Can I Qualify For The Tax Deduction?
There are five alternative ways a building system(s) may qualify. Before a taxpayer may claim the section 179D deduction with respect to property installed on or in a commercial building, the taxpayer must obtain
a certification with respect to the property. The certification must be provided by a qualified individual and satisfy the requirements of section 179D(c)(1). The five alternative ways to qualify a building are listed below:
1. The whole building may qualify for up to $1.80 per square foot; or
2. Lighting systems; or
3. HVAC/water heating; or
4. Building envelope may each qualify for up to a $0.60 per square foot deduction for their contribution to the 50 percent savings (defined by the Internal Revenue Service as 16 2/3% whole buildings savings); or
5. Lighting may receive up to a $0.30 to $0.60 deduction for reductions in lighting power density.
Contact me and I will provide you with a Full-Feasibility Report which outlines the estimated cash benefits and tax savings from a potential cost segregation study and/or Ask for An Analysis To See What Your Property Qualifies For under the Energy Tax credit study.
We are a Nationwide company, so you may contact me from anywhere in the US.
ETS recently completed a cost segregation study for a large business park near Seattle, Washington.
We were able to reclassify over 28% of the real property which resulted in nearly $2,000,000 of tax benefits.
Albert Einstein is quoted as saying: "Compounded interest is the 8th Wonder of the World. It can work for you, or against you. When you retain it, it works for you.”
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Our services go beyond the basic reports. We assist in implementing and educating our clients on the tax strategies which are important considerations when embarking on engineered studies which include:
- Abandonment Issues
- 1031 and 1033 Exchanges
- Expertise in 481 adjustment calculation and preparation of 3115 Forms
- Estate Taxes
- Partnership 754 step-up elections
- Net Operating Loss situations (Planning to minimize passive activity losses)
- Lease tax strategies
- IRS 179 deductions
To find additional information related to Industry News regarding our services, please find the links below to websites with additional resources:
Cost Segregation Audit Technique Guidelines as published by the IRS
Resources
>>> Discover Powerful, yet underutilized tax-saving strategies for Commercial and Investment properties
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NOTICE: To ensure compliance with Treasury Regulations (31 CFR Part 10, §10,35), we inform you that any tax advice contained in this website was not intended or written by us to be used, and cannot be used by you or anyone else, for the purpose of avoiding penalties imposed by the Internal Revenue Code.
