[IMGCAP(1)]In today’s economic climate, does it make sense for your business clients to invest in their buildings by making “green” improvements?
Potential savings on energy costs over time make the idea of spending now more attractive, but it’s hard to project exactly what your future savings will be.
There is another reason for your clients to make energy efficient improvements to their facilities, thanks to Section 179D of the Energy Policy Act of 2005. Tenants and building owners may be eligible for tax deductions for implementing energy efficiency components in commercial buildings. These deductions are applicable to buildings that were either built or retrofitted after Dec. 31, 2005, and must be certified by a qualified third party.
The building envelope is a great place to start when considering making energy efficiency improvements that qualify under Section 179D. Qualifying improvements to the building envelope entitle taxpayers to $0.60 per square foot. The recent issuance of Revenue Procedure 2011-14 will allow some taxpayers to claim this deduction all the way back to Jan. 1, 2006 without filing one single amended income tax return.
This means that a taxpayer could “catch up” by potentially claiming deductions from 2006-2010 (or 2011) all on one return and significantly reduce their tax burden, if not eliminate it altogether.
With energy savings and Section 179D deductions as incentives, building owners and tenants can look at various improvements to the building envelope to discover maximum benefits. Air barrier systems are designed to block unwanted air movement through the building envelope. According to the U.S. Department of Energy, air leakage through the building envelope is responsible for up to 40 percent of heating and cooling energy costs. An air barrier system can have a major impact on the energy consumption in the building, as well as potentially qualify for the Section 179D deduction.
Window glazing or tinting is another viable alternative to qualify for the Section 179D deduction, as well as saving on future energy costs. Low emissivity (Low-E) coating on glazing or glass windows controls heat transfer, usually resulting in a 30 to 50 percent reduction in energy loss.
According to the U.S. Department of Energy, Low-E coatings can be applied to the outside pane of glass to reduce heat coming into the building, and be applied to the inside pane of glass to help retain heat in the building in colder climates. Some Low-E coatings can be applied to existing windows as retrofits, which is a fairly inexpensive way to not only save on energy consumption, but also potentially qualify for the Section 179D deduction.
Additional energy efficiency improvements to the building envelope include green roof systems and cool roof systems, insulation and sealant systems, insulated exterior cladding and deck coating and membranes.
Enlisting the aid of qualified professionals to coordinate green building improvements can not only pinpoint the most effective building envelope improvements to make initially, but should result in a cohesive plan to ensure that your clients receive the maximum energy savings and tax benefit from their capital expenditures.
Taxpayers in a position to consider energy-efficient upgrades to HVAC and lighting systems as well could be eligible for a total of $1.80 per square foot in Section 179D deductions. Claiming tax deductions in exchange for spending on energy efficiency improvements can make the difference in lowering operating expenses and energy costs for years to come.
Margaret A. ("Marky") Moore, CSBA, LEED AP, is the CEO and founder of Capital Review Group, in Phoenix. She has extensive experience in building engineering, depreciation analysis, and capital equipment finance, and has been a nationally featured speaker on energy efficiency, commercial depreciation, green building practices and principles, and specialized tax incentives.
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