Tax-Saving/Energy-Saving Buildings

Are you a property owner or are you considering buying or constructing a new building?  Are you a tenant, in need of expanded or repurposed space?  Are you interested in installing more energy efficient systems to help save on your operating costs?  Has the economy of the past few years forced you to put off these plans?  Well, a tax benefit hidden within the Energy Policy Act of 2005 (EPAct 2005) might help soften the blow of the cost of these improvements, while saving on energy and maintenance costs! 

More specifically, Section 179D can make it worthwhile for a building owner or tenant to make improvements to their lighting, HVAC or building envelope.  Do I have your attention?  I hope so, because not many people seem to know about this, and you can earn a tax deduction for any new building or renovation completed between 2006 and 2013 that exceeds the 2001 energy code requirements.  How hard is that, given that the code has become significantly more stringent in the past ten years?  

The maximum deduction available under Section 179D is $1.80 per square foot for projects that exceed the overall code requirements by 50% or that meet the individual criteria for these three categories ($.60 per square foot each).  While the HVAC and envelope incentives are awarded on an “all or nothing” basis, partial deductions are available for lighting, ranging from $.30 to $.60 per square foot.  If your lighting meets today’s code, you can be sure that you’d be able to claim at least a partial deduction.

For private owners and tenants, this deduction applies to all types of commercial buildings including hotels, retail stores, parking decks, office buildings, etc as well as apartment complexes of more than four stories.  However – and now I’m talking to the architects, engineers, and others responsible for the design of these buildings – deductions are available for publicly-owned buildings as well!  In that case the deduction goes to the members of the design team (architect, engineer, and/or lighting designer) responsible for specifying the energy efficient systems. 

Meeting the criteria for the deduction requires the participation of an accounting professional as well as an engineer who was not involved in the project design.  The engineer is responsible for the review and evaluation of project documents and preparation of the required third-party documentation, including energy modeling.  The accountant is, of course, responsible for preparation of the appropriate IRS documentation.

Particularly in these difficult economic times, EPAct 2005 offers opportunities for an owner or tenant to move forward with a project that has been stalled due to concerns about cost.  For public projects, it can help design firms offset some of the losses they’ve suffered in reduced fees and expanded project schedules, which are side effects of the financial crisis.  In either case, making it possible for new projects to move forward is a win-win for everyone involved, including the employees, residents and guests of the spaces they build.

This article will appear in the December 2011 issue of the Sobel & Co. newsletter.  
Check back here for a link to the newsletter when it is published.