Eligible Structures

When planning new buildings or energy efficient upgrades to existing facilities, take note of which types of structures are actually eligible to receive tax incentives. There’s nothing more frustrating than infusing a large amount of capital on a project with the expectation of significant tax relief, only to find out after the fact that said relief isn’t going to be an option.

According to IRS guidelines, the following structures qualify for the 179D tax incentive:

• Buildings used primarily for commercial purposes
• Buildings used for industrial purposes (except industrial process systems)
• Multifamily residential buildings of four or more stories, including dormitory buildings
• Buildings that have been converted from other uses to primarily commercial use
• Unconditioned attached or detached garage spaces

These types of buildings, on the other hand, are not eligible for the 179D tax incentive:

• Single-family homes
• Multifamily buildings with three or fewer stories above grade
• Manufactured houses
• Buildings that do not use electricity or fossil fuels
• Religious buildings and organizations 

Required Savings

Previously a building was required to demonstrate a combined energy savings of 50%, but a 2008 rule change amended these criteria. In order to receive the 179D tax credit today, an upgraded structure must yield 10% energy and power cost savings for envelope improvements, 20% for lighting improvements, and 20% for HVAC improvements.

Who Qualifies?

• In general, these are the parties that are eligible to clam the tax incentive:
• Building owners that own the improvement
• Building tenants that paid for and own the improvement
• Architects, contractors or engineers responsible for designing energy efficient government buildings

Time Period 

Energy efficient upgrade projects that began in 2005 or later are eligible for the tax incentive. 

Deduction Threshold

The maximum deduction for the 179D tax incentive is $1.80 per square foot. 

Installation by Licensed Professionals

According to IRS Notice 2006-52, all work performed must be certified by a licensed contractor or engineer in the jurisdiction where the building is located. Certification documents may be prepared by a nonqualified person, but they must be reviewed and signed by a qualified individual. Additionally, the licensed profession cannot be related to the individual claiming the tax incentive.

Required Documentation

• A complete set of architectural drawings
• Energy compliance documents for lighting, envelope and HVAC
• EnergyPro computer file
• Primary contact information

These basics provide a good starting point for anyone looking to claim the 179d tax incentive. That said, it’s very important to periodically review these requirements before beginning a new project, because they are always subject to change.

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What is the 45L Tax Incentive?

This incentive is for developers and investors of affordable housing, which can save them thousands of dollars per property. The amount of money saved will change in the coming year and it is important for all developers to make sure they keep an eye on any tax changes. Last year (2013), developers and investors of affordable housing developments could save up to $2000, which was a big help to many building homes in a tough economy. It has many benefits, which will be talked about later in this article. 

Qualifying for an Energy Efficient Tax Incentive

This incentive applies to detached dwellings, townhouses, or apartment buildings and can be claimed by the unit owner within the tax-year. If the owner has apartment buildings, the tax incentive will include each apartment unit and the buildings must meet EPA standards.The unit must have 50% less energy consumption when compared to similar dwellings to qualify. An engineer will inspect the unit to ensure it is up to the EPA regulations in order to qualify for the 45L energy efficient tax incentive.

Multiple Benefits

An affordable housing dwelling that meets the standards of the energy efficient tax incentive for homes will have many benefits. A home may provide more equity for the dwelling owners for Low-income Housing Tax Credit (LIHTC) projects. Developers will receive many tax benefits, as well after a housing unit has been built and is ready for occupants. This tax incentive will also provide developers or investors with the possibility of a short time partnership, helping them to avoid any losses by lessening the equity of the project.

Key Things To Remember

Before attempting to qualify for the 45L tax incentive, developers and investors must make sure the costs of the material will not be too expensive. If the materials are more expensive than the initial project, the tax benefits may not be enough to make up the difference. It is good to have a set budget in mind and then research the materials needed. 

In Closing

Claris Energy understands that qualifying and researching the 45L energy efficient tax incentives for homes can be overwhelming. Claris Energy is a company that will help developers and investors work through the process of the 45L tax incentive, ensuring they qualify or help them find alternative methods that will work best for them. Contact Claris Energy today to learn more.

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