Going Green Puts More Green in Your Wallet!
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 new or 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.
To qualify for the full deduction ($1.80 per sq. ft.) a building owner must make investments designed to reduce energy costs by at least 50%. A partial deduction, and more likely to qualify, of up to $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% (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 credits, 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.
What can you do today to be ready?Establish the energy use of your building(s) and set a savings.
It is hard to manage what we do not measure. With new easy to use energy use tracking tools, you can establish the current energy use of your building(s) and determine a reasonable energy savings goal. This is the first step in many effective energy savings programs, and will help you identify the best opportunities to qualify for the tax deduction.
Here’s how:
Assess the current energy use of your building(s) to establish a reference using EPA’s national energy performance rating system (www.energystar.gov/benchmark), a free online tool that provides many types of buildings with a score on a simple 1-to-100 scale, 1 being the least efficient and 100 being the most.
ENERGY EFFICIENCY STUDY & ENERGY CERTIFICATION
In Accordance with the request for a Certificate relating to the deduction for energy efficient commercial buildings under §179D of the Internal Revenue Code for the proposed or newly installed: lighting upgrades, HVAC, hot water and building envelope, Engineering Tax Services is approved for the Certification Process and conducts this process in accordance to Section 1331 of the Energy Policy Act of 2005,Pub. L. No. 109-58, 119 Sta. 594 (2005) enacted §179D of the Internal Revenue Code.
1. 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.
SUB -SYSTEMS: Lighting, HVAC, Hot Water and Building Envelope
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.
2. IRS GUIDELINES
ETS follows the IRS Guidelines relative to Partial Credits and the Interim Rule, PartialCredits and the Permanent Rule Notice 2006-52, Calculation methods - Notice 2006 -52, and the Certification - Notice 2005 -52.
3. SCOPE OF SERVICES
ETS will conduct a physical inspection and perform an Energy Efficiency Study (EES) to alculate, determine and certify the allowable deductions for part or all of the cost of the Energy Efficient Lighting, HVAC, hot water, and building envelope - or any one of these Sub-Systems that have been placed in service after December 31, 2005 and before January 1, 2008.
4. INTERIM RULES - LIGHTING
Interim rules (existing while the Secretary of the Treasury develops long-term rules)establishes a deduction of $.30 per square foot for buildings - or portion of buildings - that achieve at least 25% lighting savings relative to the ASHRAE 90.1-2001 lighting power density (Watts per sq. ft) requirements (but excluding ASHRAE’s “additional lighting power allowances”) AND that also use bi-level switching. This deduction increases progressively to $.60 per square foot for using bi-level switching and achieving 40% lighting savings.
5. HVAC, HEAT PUMPS, FURNACES AND WATER HEATERS
Energy efficient heating, cooling, ventilation and hot water property is partially qualifying property, within the meaning of Section 2.01 of Notice - 160920-05 (Notice 2006-52) that satisfies both of the following conditions:
1) The property is installed as part of the heating, cooling, ventilation and hot water systems of a building; and 2) It is certified that the heating, cooling, ventilation and hot water systems that have been incorporated into the building, or that the taxpayer plans to incorporate into the building subsequent to the installation of such property, will reduce the total annual energy and power costs with respect to combined usage of the building’s heating, cooling, ventilation, hot water and interior lighting systems by 16 2/3% or more - meeting the minimum requirements of Standard 90.1-2001. The required 16 2/3% reduction must be accomplished solely through energy and power cost reductions for the heating, cooling, ventilation and hot water systems.
Reductions in any other energy uses, such as receptacles, process loads, refrigeration, cooking, and elevators, are not taken into account in determining whether the 16 2/3% reduction achieved.
6. 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 of Standard 90.1-2001.
7. CERTIFICATION
Before a taxpayer may claim a Section 179D deductions 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(1). Statements of Certification must meet the minimum requirements of Standard 90.1-2001 for interior lighting systems, heating, cooling, and ventilation and hot water systems and illustrate the energy reduction by 50% or more. Statements for Energy Efficient Lighting Systems meeting the requirements of the permanent rule Section 2.03(1)(a) - will be made satisfying a reduction by 16 2/3% or more. Statements for Energy Efficient Lighting Systems meeting the requirements of the interim rule of Section 2.03(1)(b) - must satisfy the requirements stated in Section 2.03(1)(a) of Notice 2006-52.
8. 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.
CONTACT US TO DISCUSS TO DISCUSS A FREE ENERGY AUDIT REPORT
GOING GREEN
The built environment has a profound impact on our natural environment, economy, health, and productivity. SIG Equity is currently pursuing education and certifications on this new developing area in commercial real estate that has quickly gained popularity. We feel that it is essential in moving forward to consider the benefits of Green Building and we strive to incorporate Green Building principals into our rehabilitation and development efforts.
While we believe in Going Green, We also understand that a real estate investment should be just that, an investment. So we are committed to finding the balance with Green initiatives so that our investors are helping future generations, but doing so at a more than reasonable return on their hard earned investment dollars. The majority of apartment buildings on campuses and within cities around the U.S are 20-40 years old and in major need of updating and modernizing. We believe that with sound investment analysis and careful use of environmentally sustainable resources we will help communities improve the quality of life for the tenant, and improve the look, feel, and life style of the cities residents.
With energy cost climbing out of control and our natural resources declining rapidly we choose to make the best choices possible for each project for both the investor and the future of those directly impacted for generations to come.
Below are a few stats and bits of information that you may also find interesting. These are the percentages that real estate contributes to the enviroment.
In the United States alone, buildings account for:
· 70% of electricity consumption
· 39% of energy use
· 39% of all carbon dioxide (CO2) emissions
· 40% of raw materials use
· 30% of waste output (136 million tons annually)
· 12% of potable water consumption.
Why Going Green Makes Sense:
· Enhance and protect ecosystems and biodiversity
· Improve air and water quality
· Reduce solid waste
· Conserve natural resources
· Reduce operating costs
· Enhance asset value and profits
· Improve employee productivity and satisfaction
· Optimize life-cycle economic performance
Health and community benefits:
· Improve air, thermal, and acoustic environments
· Enhance occupant comfort and health
· Minimize strain on local infrastructure
· Contribute to overall quality of life
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