Update: Alternative Energy Tax Credits And Capturing Missed EPAct Tax Deductions
Section 179D carries other considerations for facility managers beyond just lighting, HVAC and the building envelope. Among them are alternative energy tax credits and capturing missed EPAct tax deductions.
Benchmark With Energy Star
Property owners with buildings 10 years old or older should benchmark their buildings' energy use with Energy Star's Portfolio Manager software as soon as they can. While Portfolio Manager is not specifically mentioned in the proposed legislation, it is our belief that it will be the required software. Regardless, this benchmarking exercise should help identify low rated buildings, where the $4 per square foot incentive is most likely to be available.
The building stock owned by nonprofit schools, hospitals and worship facilities should also be analyzed, because energy upgrades to those facilities will be eligible for federal tax deductions under the current Senate proposal for Section 179D. The same holds true of REIT properties. REITs own most of the institutional grade property in the United States, in particular most Class A office. REITs have large holdings in the state and city jurisdictions with newly enacted mandatory energy benchmarking rules, which provides them with a road map for buildings requiring energy upgrades.
The 30 percent wind tax credit has been extended for any project that begins in 2013. The extension of the wind tax credit is always controversial. Anyone interested in a wind project should make certain they meet the project commencement standard in 2013. Historically, when the wind credit expires, the U.S. wind industry rapidly contracts.
Many important commercial alternative energy tax credits expire as of Dec. 31, 2016. These include the 30 percent solar tax credit, the 30 percent fuel cell tax credit, the 10 percent geothermal tax credit, and the 10 percent combined heat and power tax credit. These projects are typically large capital projects that require long lead times to secure internal corporate approvals and external governmental permitting approvals. For example, a solar photovoltaic project for a large commercial building is a multi-million dollar project typically requiring board approval. In some states, required commercial solar photovoltaic interconnect approvals can take 200 to 300 days.
Capturing Missed Benefits
The IRS realized that, since Jan. 1, 2006, many commercial property owners missed their EPAct 179D tax incentives when they completed lighting, HVAC, and roof projects. To make the tax incentive process easier and eliminate burdensome amended tax returns, IRS issued Revenue Procedure 2011-14. With this process, a commercial property owner can use IRS Form 3115 to calculate the missed incentive and report it on the next filed tax return. This process is particularly convenient for properties owned by multiple investors because individual investors do not have to amend their personal tax returns.
No one can be certain about future tax legislation. Some of the current energy tax incentives are very lucrative and may never be available again. With some of the commercial energy efficiency measures, such as energy efficient lighting, the economic payback is often already quite favorable and the tax savings is simply intended to accelerate what is already a good business decision. Now is the time to take a close look at tax planning considerations, whether that is maximizing the current 179D EPAct provisions, recouping any missed tax incentives back to Jan. 1, 2006, or planning for the potential extension and expansion of energy-related tax benefits.
Charles R. Goulding, an attorney and CPA, is president and founder of Energy Tax Savers, Inc. The firm has more than 10,000 projects completed. He can be reached at charles.goulding@
Jennifer Pariante is an analyst with Energy Tax Savers, Inc. Her responsibilities include analyzing potential tax projects. She can be reached at Jennifer.Pariante@energytaxsavers.com.