Tax Deduction

Section 179D provisions envision a tax credit of up to 1.8 dollars per square foot of commercial building construction. The total amount can be obtained if three kinds of energy efficiency projects are executed – lighting, HVAC and building envelope.

If you decide to opt solely for the installation of energy efficient LED lighting, you will qualify for a partial deduction under EPAct 179D. This partial deduction can reach up to 0.6 dollars per square foot of commercial building area.

To take advantage of the deduction, the constructor, designer or investor must opt for third-party certification. The certification company has to establish that the lighting improvement has resulted in significant energy consumption reduction, as compared to a similar commercial building.

Why Opt for LED Lights?

The use of LED lights for EPAct 179D incentive qualification has been gaining more and more popularity. Apart from making it easy to benefit from the incentive, the selection of such lighting systems will make the commercial spaces more attractive because of the energy efficiency results these deliver.

LED lights are more expensive than other energy efficient options on the market but they also happen to be tremendously durable and they tend to last longer than fluorescent lights. The LED lights feature cool operation and they are mercury-free.

This kind of lighting comes with zero UV emission. The LED bulbs produce only a small amount of infrared light. Since there’s no UV light, the LED bulbs can be used in places where UV-sensitive objects are found. Such places could include museums, art galleries or archaeological sites.

The use of LED lighting enables significant design flexibility. Individual LED lights can be used at points of interest and a number of lights clustered together will provide the perfect work area illumination. The color and distribution of light are also easy to control, which enables flexibility and the creation of the perfect workplace conditions in a commercial space.

LED lighting comes with a vast range of additional advantages that include:

• More light efficiency and since light is highly focused
• Very silent, especially when compared to the noisy fluorescent light bulbs
• A vast range of colors, which makes LED lights suitable for all purposes
• Instant lighting (again, in comparison to fluorescent bulbs)
• Low voltage power will be sufficient to light the LEDs
• Not affected by low temperature, which makes them suitable for outdoor use, as well

Where LED Lights can be Used in a Commercial Building

To benefit from the EPAct 179D incentive, it’s imperative to come up with a good plan for the creation of an energy efficient lighting system.

LED lights are perfect for use in commercial building garages where they can reduce the electricity consumption significantly. The 24-hour operation of many commercial garages leads to significant electricity costs associated to lighting.

The same applies to retail spaces, hallways and reception areas. Restaurants and dining areas will also benefit from the selection of the LED lighting possibility.

Constructors and designers of commercial spaces should think about efficiency, practicality and EPAct 179D qualification when coming up with architectural and construction plans. LED lights are a great possibility for making commercial spaces more attractive and reducing their energy consumption significantly.

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The latest developments concerning the extension of EPAct 179D came in the spring months of 2014 but many interest groups and companies dealing with energy efficient projects have started lobbying for prolonged financial incentives.

The energy efficient commercial building tax deduction, which is known as section 179D, expired on December 31, 2013. In April 2014, the Senate Finance Committee voted to approve a two-year extension under the Expiring Provisions Improvement Reform and Efficiency act or EXPIRE. When it comes to Senate approval, however, there has been no progress made.

EXPIRE Development

The act is currently being examined by US Senate. The Senate failed to pass the act in May since all republicans voted against the development.

Section 179D was originally introduced in 2005. Deduction incentives of up to 1.8 dollars per square foot of affected space were available for all qualifying commercial building energy efficiency improvements. Some of these improvements included lighting systems, HVAC and building envelope.

The provision was extended once already in 2008 but currently, EXPIRE is at a standstill and there’s no information whether the planned two-year extension is going to come into effect.

Lobbying for the Extension

Numerous renewable energy groups have lobbied vigorously for EPAct 179D to be extended by Senate. The American Wind Energy Association has been quite vocal in its support of EXPIRE.

According to energy efficiency and alternative energy organization, numerous workplaces are jeopardized by the Senate’s failure to extend the tax deduction.

The Geothermal Exchange Organization (GEO) has been another avid supported of EPAct 179Ds extension. According to GEO representatives, businesses will now have to deal with expenses of up to 500,000 dollars for geothermal installations. Section 179D previously reduced the cost of such installations by as much as 50 percent.

The Industry Remains Optimistic

Numerous industry representatives remain optimistic that Senate is going to make the decision about the extension of the tax provision.

The robust backing of the business sector and the intensified efforts of lobbying groups are sooner or later expected to impact decision makers and produce some extension, even if the provisions of EPAct 179D happen to be modified.

Other Energy Incentives

Commercial building project executors can still look for other incentives and financial stimuli for the execution of energy efficiency projects. While the fate of EPAct 179D remains unknown, various other projects and programs can be relied on.

Both state and local programs are available for entrepreneurs interested in green developments. Businesses making energy efficiency improvements are entitled to grants and governmental incentives. The Environmental Protection Agency’s (EPA) website has an extensive list of funding opportunities and the application requirements for each.

Officials and decision makers are putting more and more emphasis on green developments and the reliance on alternative energy systems for electricity production. Under such circumstances, the extension of tax stimuli sounds logical. EXPIRE’s fate is still unclear but businesses have options to choose among. Though applying for financial assistance may be a lengthy process, it will deliver sufficient benefits that will justify the time and effort.

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The EPAct 179D tax incentive relates directly to the design of commercial building properties that incorporate energy-efficiency systems. Up to $1.80 per square foot is the tax incentive allowable qualifying structures under the EPAct 179D. The incentive also allows a retroactively granted deduction for any existing facilities that fall under specific guidelines.

The tax deduction allows commercial builders to offset some of the expenses and costs of implementing energy-efficiency improvements. In normal situations, it could take as much 30+ years to recover depreciation costs for improvements, but the tax incentive encourages businesses to take advantage of its availability. Unfortunately, many businesses aren’t aware that the tax deduction even exists, however, realizing the benefits can be a deciding factor.

How to Qualify for EPAct 179D

A qualified engineer or contractor must inspect and test the improvements before a deduction is given. The energy-efficient improvements must be at least a reduction of 50% of the total energy and power costs in order to qualify. This reduction must be evident in the heating, cooling, ventilation and hot water systems of the structure. Partial deductions are allowed in some cases and the information to determine that is gleaned from the engineer or contractor’s reports.

Qualifying Factors for the EPAct 179D

Businesses can determine if they want to take advantage of this tax incentive by analyzing the company and its structure. Basically, any size commercial buildings and apartments that are more than four stories high are eligible. Owners of public building structures are qualified individuals, although they may allocate the deductions to the engineer, contractor, architect, environmental consultant or energy services provider. This is only valid for the date of the taxable year that the property was deemed serviceable.

Although not all businesses will qualify for the tax deductions, some projects can be pre-qualified beforehand to determine any eligibility. This route allows building owners to avoid any installation costs if his project is deemed ineligible for the tax incentive.

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The R&D tax credit rewards manufacturing companies who choose to maintain their edge on the competition via research and development. This incentive has been used by large companies for many years, with the incentive becoming more generous through the decades. Yet, those businesses that are small to medium in size are often unaware how easy it is to actually qualify for it, and so it continues to not be taken advantage of.

Check Every Year for Eligibility

Some business owners believe that if they didn’t qualify for the R&D tax incentive before, that they may not qualify currently. But this is not necessarily the case. The documentation requirements were modified by the U.S. Treasury in 2003. This changed the definition of what activities would qualify a company for the tax incentive. Now, any research and development that is new to a business can qualify for the incentive. Before, only research and development that was new to the marketplace would qualify.

A business can also claim the R&D tax incentive for any open tax years, which can mean one or more decades and many thousands of dollars for a business.

What Kinds Of Manufacturing Companies Can Benefit From the R&D Tax Incentive?

There are various businesses in the manufacturing industry that can receive the research and development tax incentive.  These include plastic injection molding companies, machine shops, apparel and textiles businesses and software companies.

Self-Censorship Can Slow Growth

Even though this incentive is one of the most generous of its kind to be offered by Congress, self-censorship has caused its under-use. But there is another side effect of self-censorship, and that is the slowed growth of the economy. When a company thinks there is no incentive for research and development, it is less likely to occur. Thus, innovation and job growth are stifled.  This doesn’t benefit the country’s economy. But when the credit is taken advantage of, new jobs can be added and layoffs completely prevented, which means steady employment for more citizens. This says a lot, considering that seventy percent of jobs in the U.S. come from mid-sized businesses.

The government provides around ten billion dollars in R&D incentives each year for every level of business. This alone makes it worth it for businesses to research the incentive further. The return a business can receive from the R&D incentive can be further complemented by the EPAct 179D if green construction of a new building has occurred, and that building is currently in use. It definitely pays to review eligibility for credit from the government each and every year.

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HVAC represents the largest portion of energy costs for hotel and apartment building owners. But when a VRV system is introduced, these costs can reduce annual energy costs by a minimum of 20%. In addition, total energy costs for a building can be reduced by as much as 40% when VRV technology is implemented.

These variable refrigerant volume systems or VRVs represent the highest energy efficiency of any air conditioning system used in commercial buildings. This is because a VRV allows for individual control of temperatures via room or zone, unlike traditional air conditioning units which do not.

Types of establishments benefiting most from this VRV technology include schools, hotels, apartment building and office buildings, as these are the types of locations where the ability to control temperature individually is most in demand.

For architects and engineers, VRV technology increases the flexibility of building design. But it is not only incredibly convenient; VRV technology is also the most energy-efficient solution available. As a result, those building owners who have made investments into reducing energy using VRV systems may now qualify for a number of tax incentives via the EPAct 179D.

Available Tax Incentives for Building Owners

Building owners who have installed VRV systems, whether in a new or existing location may enjoy instant tax deductions that may reach $1.80 per square foot.  However, there are incentives even if a building does not qualify for this maximum.

Each major building subsystem that an owner implements can receive a deduction of up to $0.60 per square foot. These subsystems include ventilation, air conditioning and heating. In addition, the deduction may apply to the building envelope, which consists of doors, walls, roof windows, insulation and foundation.

For hotel owners, the same potential for deductions applies, which is definitely good news for an industry enjoying rapid recovery following decimation during the recent downturn. Many hotels are now implementing VRV technology as the result of previously-defined and mandatory replacement of HVAC systems.

Qualifying For the EPAct 179D Deductions

Those wishing to apply for tax deductions for VRV system implementation can pre-qualify their project prior to implementation. This will allow building owners to determine whether installation will be eligible for the deduction.

Building owners who have already installed a VRV system will require inspection of the installation by a qualified individual. This individual will survey the site and confirm the proper installation and operation of the system.

Any collected data will be assessed for the ASHRAE Standard 90.1.2001, with any savings coming from the ASHRAE database. The building owner’s compliance will be confirmed, and the building’s efficiency determined. Once the ASHRAE forms have been completed, the final report will be prepared and sent to an engineer for certification. Following an internal review, the final report is issued to the building owner.

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1. Different Lighting Methods

One of the most energy and cost efficient lighting methods on the market are LEDs. These will save businesses money in the long run while being efficient and eco-friendly. The estimated life of LEDs is 86,000 hours with little to no maintenance required. For a building that requires lights to be on all day, every day an LED lighting system will have a life of about ten years. 

2. Using Renewable Energy

A key element in energy efficiency is using renewable energy. This can come from many different sources and 50 percent of the items purchased for the building must be from renewable resources and use renewable energy. This is not as difficult as many may think as most products now focus on using renewable resources or energy. It is important to know that one of the biggest drains on energy for most buildings is hot water. The EPAct 179D requires that approximately 30 percent of hot water should be generated by solar power heating. 

3. Receiving Certification for the Deduction

An important part many forget is receiving a certificate for the incentive. An architect and engineer cannot simply inform the IRS that they have met the requirements. They will be expected to give documentation that they have met all regulations. In order to get an unbiased opinion, the builders must seek a third party individual to look through the building and craft the certificate for the builders. Once the certificate is complete, architects and engineers can send it into the IRS to apply for the 179D tax deduction.

4. Energy Consumption for Construction and Maintenance

When building an energy efficient structure, most may believe they only need to make the building efficient. This is not the case if they want to qualify for the EPAct 179D tax deduction. All aspects of the building process must be energy efficient and environmentally friendly. This includes the construction vehicles required for building, any electrical equipment needed, as well as all appliances that go in the building. Most construction vehicles do come with energy efficient models for individuals to choose, but many may not be aware of those vehicles. It is wise to ask about different environmentally friendly items before beginning the building

Building energy efficient structures will not only help architects and engineers receive the EPAct 179D tax incentive, but will also help businesses save money in the future. It will also have a better impact on the earth’s environment and will help bolster individual human health. For more information regarding the EPAct 179D, please contact Claris Energy today.

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Qualifying for Energy Tax Credits

Qualifying a commercial building for energy tax credits is not difficult to manage, especially if the building is new. The tax credit is for either the owner or individual who leases the commercial property. Some of the technologies that are available for the incentive are:

• Insulation around equipment.
• Water heaters.
• Light sources and controls.
• Heat pumps or central heating and cooling.
• Siding, windows, roofs, and building insulation.

The equipment must meet certain requirements such as:

• Meeting energy requirements that are specific to the area or building type.
• Improve upon lighting fixtures.
• Improve upon heating and cooling equipment.
• Improvement of ventilation systems.

When a commercial property owner or lessee is looking for energy tax credit qualifications, they can call their local government offices or research on the United States EPA website. Owners and individuals who lease the property can also ask professionals if they meet energy requirements.

How Does Energy Efficiency Benefit Companies?

Companies who utilize energy efficient methods will not only reap benefits with taxes but also see that their overall bills will be cheaper. Energy efficient models of common items such as heating and cooling units help companies use minimal energy. Because the company usesminimal energy, their heating and cooling costs will be lowered significantly. Those bills can be the biggest expenses for companies and any way to save money in the current economic climate is welcome to everyone. 

When To Expect Tax Changes?

Experts say that changes and expansions to theEPAct 179D tax incentives and energy tax deductions will be released sometime in the summer of 2014. This will give businesses enough time to ensure their properties adequately meet requirements. The amount of incentive given will also be released and will most likely be changed from previous years. It is important for all commercial property owners to keep an eye out for the latest tax news regarding energy-efficient tax incentives. 

All owners and individuals who lease commercial property can seek professional help about receiving energy tax incentives by contacting companies such as Claris Energy. Claris Energy employees are trained specifically in working with the 179D section of the EPAct. Please contact Claris Energy today to learn about energy tax incentives and to stay current on future tax changes.

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