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Be Irish — Going Green has tax benefits!

As previously discussed in the June 2008 Tax Highlights, “Save $$ by Going Green with Your Building”, Section 179D, originally enacted as part of the Energy Policy Act of 2005, provides a deduction for energy-efficient commercial buildings through December 31, 2013. A deduction of up to $1.80 per square foot is allowed for the cost of investment in energy-efficient commercial building property that is part of new construction or renovation. Please be aware that the $1.80 or lesser amounts noted below represent a maximum cumulative deduction (even if over a number of years).

In addition, the energy-efficient building property must meet the following qualifications:

• The property is otherwise eligible for depreciation or amortization.
• The property is installed in a building located in the United States and meets the scope of Standard 90.1-2001. (Standard 90.1-2001 of the American Society of Heating, Refrigeration, and Air Conditioning Engineers and the Illuminating Engineering Society of North America, as in effect on April 2, 2003.)
• The property is installed as part of the interior lighting systems, heating, cooling, ventilation, hot water systems, or the building envelope.
• The property is certified as being installed as part of a plan designed to reduce the total annual energy and power costs for the interior lighting, heating, cooling, ventilation, and hot water systems of the building by 50% or more as compared to a reference building that meets the minimum requirements of standard 90.1-2001.

Architect and Engineers of Government Buildings: Congress has incentivized green design in government buildings. The deduction for energy-efficient building property installed on or in government buildings is allowed to “the person primarily responsible for designing the property.”  These government buildings include, but are not limited to

• Federal: offices, military bases, court houses, and post offices;
• State: offices, transportation facilities, state universities, and court houses;
• County, city, town, village: offices, schools, town halls, police, fire, and libraries.

Partially Qualifying Property:  If the building does not qualify for the full $1.80-per-square-foot deduction, one should examine whether part of the qualifying systems meet its designated energy-savings target. If so, the property could be eligible for a partial tax deduction. The partial deduction is limited to the cost of the equipment or $0.60 per square foot of the building. The law describes three components of a building that qualify for the aforementioned limited deduction:

• The interior lighting system
• The heating, cooling, ventilation, and hot water systems
• The building envelope

Furthermore, the deduction for reductions in lighting power density (LPD) of less than 40% may qualify for a reduced deduction. These special lighting rules allow a lesser amount, $0.30 - $0.60 per square foot, to be deductible for a reduction of 25% - 40% in the LPD below standard.

 

 

To be allowed the above interim lighting tax deduction, the following are required:

• The watts-per-square-foot targets be met
• The lighting have bi-level switching
• The structure meet ASHRAE Standard 90.1-2001 defined as “Energy Standard for Buildings Except  Low-Rise Residential Buildings”
• The structure meet IESNA minimum light levels

According to Standard 90.1-2001, the structure needs to be wholly or partially enclosed within exterior walls, or within exterior and party walls, and a roof, affording shelter to persons, animals, or property. Also, the building shall not be a single-family home, a multi-family structure of three stories or fewer above grade, or a manufactured house.

Retrofit Lighting and Utilities Rebates:  As lighting technology continues to evolve, products are being developed to use less energy. Energy savings may be the main driver for retrofitting lighting; some states and utilities offer rebates for energy-efficient lighting installations. Peoples Gas offers rebates of up to $750 for gas-related energy-efficient upgrades based on type of improvements (insulation, boilers, furnaces, water heaters). Similarly, ComEd offers a number of incentives for improving energy efficiency. ComEd’s programs include:

• Prescriptive Projects – Set dollar value incentives based on specified energy-efficient improvements. Projects cover HVAC, lighting, refrigeration, and motors.
• Custom Projects – Incentives for custom projects, based on energy savings and project payback periods.
  • Compressed air, custom lighting, EMS Control, HVAC, VFD Lighting
  • $0.03 - $0.07/kWh incentive
  • 100% incentive up to $100,000, 50% incentive above $100,000 – max of $200,000
• Energy Efficient Project Analysis – ComEd may assist a customer in designing a plan for overall energy savings if the customer meets certain requirements. 

For more information, visit ComEd.com.

For further information please contact Cara Hoffman at 312-980-3274 or Kristen Baehl at 312.980.3238 or your Blackman Kallick representative.

 

 

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.