Green Building Tax Incentives Overview
Federal, state and local governments have created and extended over 2,000 financial incentive programs to reward energy efficiency and the use of alternative energy in the design, construction, and improvement of buildings and homes. To redeem many of these incentives, a qualified third party expert is needed. The relationship with a third party expert will not only provide the required certifications by these agencies, but early involvement also allows for design alternatives to be assessed so that all green building incentives are maximized. Companies that have developed properties in the past five years without necessarily trying to “go green” are often pleasantly surprised to discover that they qualify for the EPAct 45L tax credits and 179D deductions among other financial incentives, thanks in part to new construction trends, rapidly changing technologies, and more stringent building codes.
Green building tax incentives generally target:
- Any Company with Real Estate Holdings
- Commercial Developers
- Residential Developers
- Condominium communities
- Production homebuilders (or those making improvements or renovations to any building)
- Architects and designers of government-owned properties
Many of these incentives are limited to a first-come, first-served basis or require application before construction begins. Moreover, any company constructing a green building should get KBKG involved as soon as possible so we can make design recommendations that will ensure the building qualifies for as many tax credits, deductions and incentives as possible.
State Tax Credits & Incentives
There are many ways to obtain state tax credits, deductions, and exemptions. Certain states award incentives to companies purchasing and installing qualifying equipment used to optimize energy efficiency, such as solar panels or geothermal heat pumps. Other states award companies simply for building an energy efficient building or by having the facility meet a certain threshold of energy use.
For businesses that meet certain energy efficiency criteria, such as those established by the federal Energy Star program, the owner or tenant may be awarded state rebates. Companies can also receive rebates for specific items they purchase in their buildings, such as energy efficient light fixtures or heating equipment. The dollar amounts of these rebates can vary, and are usually based upon the aggressiveness of a particular company’s campaign to go green.
Property Tax & Sales Tax Incentives
Some of the more appealing property and sales tax incentives include:
Many areas allow for significant property tax exemptions if the building is certified as “green.” In fact, there are other property tax benefits that allow the added value of renewable energy systems to be separated from property valuation for tax purposes, such as purchasing a new appliance or renewable energy system can qualify for a sales tax exemption or refund, or a partial abatement. A number of states also offer sales tax holidays, where investments in energy efficiency are exempt from state sales tax for a period of time.
Several states offer grants that are designed to aid companies in exploring the viability of implementing an energy efficiency project or process improvement. Grants are typically available to both the public and private sector, research universities and businesses alike, with grant types ranging from research to large-scale implementation.
Federal Deductions, Credits and Grants
Most of the Federal incentives require a third party certification to comply with IRS regulations.
Commercial Developers, Real Estate Investors, and Architects
The Emergency Economic Stabilization Act of 2008 extended the Energy Efficient Commercial Buildings Deduction through December 31, 2013. This legislation offers a tax deduction of up to $1.80/sf to those investing in energy efficient improvements placed in service after August 8, 2005. Eligible improvements must reduce energy use for any of the following categories:
- Building Envelope
- Interior lighting systems
Unlike most deductions, which are based on the amount spent, this deduction is primarily based on affected square footages. Ideal candidates will generally have improvements with a square footage of at least 50,000 square feet. A wide range of improvements, from simple lighting retrofits to full-scale construction projects, qualify for this timely tax break. Other great candidates include regional or national chains with multiple locations.
Architects are eligible to receive this $1.80/sf for any government building they design, even though they have no basis in the property.
» More information on Section 179D Tax Deduction
Section 45L Tax Credit
Apartment, Condominium, and Single-Family Residence Developers
The Energy Efficient Home Credit offers a tax credit of $2,000 per dwelling unit to developers of energy efficient buildings completed after August 8, 2005. The following types of projects should be considered:
- Apartment buildings
- Residential condominiums
- Production home developments
- Substantial reconstruction
A dwelling unit should provide a level of heating and cooling energy consumption that is significantly less than certain 2004 energy standards. Given that current energy codes have evolved tremendously over the past five years, many developers are already building to specifications that would meet the criteria for this credit. There is still an opportunity to retroactively claim any missed tax credits, as long as the return is amended before the three year federal statute of limitations.
» More information on Section 45L Tax Credit
Energy Tax Credit and Grants
The Section 48 Energy Tax Credit provides up to a 30% tax credit to those who actively invest in solar energy qualifying stationary microturbine power plants, certain geothermal equipment and heat pumps, and certain combined heat and power or cogeneration systems. For companies that don’t need tax credits, there are currently incentives in place that allow you to receive a Federal grant in lieu of tax credits. Section 48 property has a tax recovery period of five years, allowing for a potential 50% bonus depreciation deduction if placed in service in an eligible year. Businesses that find the Section 48 tax credit to be beneficial are often able to use a cost segregation study to increase the allocation towards property eligible for these credits while accelerating depreciation on other assets.
Get started today
KBKG has the in-house expertise and the required professional qualifications to certify and secure these lucrative tax and financial benefits. Our team can also assist in the design process of future projects by suggesting design alternatives that would ensure qualification for specific green building incentives. Call 877.525.4462 x150 for more information.