Incentives for Energy Efficiency
If your company is investing in energy-efficient construction projects, you’ll want to take advantage of any available government incentives to help offset the costs. BKD can help. Powerful tax incentives are available to energy-efficient commercial/residential real estate developers and government-owned project designers.
BKD’s tax and engineering professionals can help you determine whether your buildings are eligible for these benefits and, if so, help you claim them.
What is 45L?
Under Internal Revenue Code Section 45L, “eligible contractors” may generate a $2,000 income tax credit for the construction of a “qualified new energy-efficient home” sold or leased as a residence during the taxable year. The $2,000 income tax credit is available for “dwelling units” meeting certain energy efficiency standards.
The dwelling unit must reduce total energy use by at least 50 percent compared to the standards in Chapter 4 of the 2006 International Energy Conservation Code. In addition, the building envelope must account for at least one-fifth of the reduction in energy consumption.
An “eligible contractor” is the person or entity that owns the qualified energy-efficient home during its construction. If a taxpayer hires a third-party contractor to construct the home but owns and has basis in the home during its construction, the person hiring the contractor is the eligible contractor, not the third party.
The 45L credit is available for an eligible contractor in the year the certified dwelling units are leased or sold.
What Is 179D?
The 179D tax deduction allows a deduction of up to $1.80 per square foot for the installation of systems that reduce total energy use by 50 percent or a deduction of up to 60 cents per square foot each for reducing energy use in the lighting, HVAC or building envelope systems. For the purpose of the deduction, the energy-use reductions are compared to 2001 standards under the American Society of Heating, Refrigerating and Air-Conditioning Engineers Standard 90.1-2001 for projects placed in service before December 31, 2015. For projects placed in service beginning January 1, 2016, the energy-use reductions are compared to the 2007 American Society of Heating, Refrigerating and Air-Conditioning Engineers Standard.
What Projects Qualify?
There are four types of projects that may qualify for the 179D deduction:
- New construction of a commercial use property
- New construction of an apartment building with more than three floors above ground
- New construction of government-owned buildings (In this case, the deduction may be allocated to the firm responsible for the design of the building or system.)
- Improvements, additions or system retrofit projects for existing buildings described in 1, 2 or 3 above