TAX DEDUCTION FOR GREEN BUILDINGS

Presented By T. Wayne Owens, CPA

Deemer, Dana & Froehle, LLP

USGBC

Founded in 1996

U.S. Green Building Council

a 501(c)(3) non-profit community of leaders working to make green buildings available to everyone within a generation

Developed and continues to refine the LEED certification

What is LEED Certification?

Provides building owners and operators a concise framework for identifying and implementing practical and measurable green building design, construction, operations and maintenance solutions

A voluntary certification program that can be applied to any building type and any building lifecycle phase.

What Does LEED Cover?

Sustainable Sites

Water Efficiency

Energy & Atmosphere

Materials & Resources

Indoor Environmental Quality

Locations & Linkages

Innovation in Design

ENERGY EFFICIENT COMMERCIAL BUILDINGS

DEDUCTION

Section 179D Deduction

The Green Building Deduction

Part of the Energy Policy Act of 2005

Extended through December 31, 2013 by the Emergency Economic Stabilization Act of 2008

Provides up to $1.80 per square foot deduction of energy-efficient commercial property

Available for new construction or upgrading of existing commercial buildings

Building Types Available for Deduction

Any commercial building

Multi-family structures of three or more floors

Government buildings

Can include leasehold improvements

NOTE: buildings owned by non-profit entities (churches, charities, private clubs, etc) do not qualify

What is “Energy Efficient Commercial Property”?

Interior lighting systems

Heating, cooling, ventilation and hot water systems

Building envelope

Must be installed on any “building” (affords shelter to persons, animals or property) except single family houses

Must be in the United States

Energy Efficient

LEED certification not a guarantee of deduction

Separate analysis must be performed and property certified

Must produce a 50% or more reduction in energy usage compared to a “reference building”

The reference building must meet the minimum requirements of AASHRE Standard 90.1-2001

Who Certifies Property?

A professional engineer licensed in the jurisdiction where the building is located

A contractor licensed in the jurisdiction where the building is located

Qualified computer software must be used to determine the energy savings

All field inspections must be performed in accordance with the National Renewable Energy Laboratory Energy Savings Modeling and Inspection Guidelines of Commercial Building Federal Tax Deduction

The report must be prepared in accordance with tax rules

What’s the Catch?

For a non-government taxpayer it is a reduction of basis

The deduction is just rapid depreciation

Reduces depreciation in future years

WHAT’S IN IT FOR ME?

OPPORTUNITY #1

Value Added Service

The rapid depreciation reduces owner’s taxes thus increases cash flow

Cash flow is very important to developers

Knowledge of the 179D deduction can be a “differentiator” for a design firm

Great selling tool

HOW ABOUT THE GOVERNMENT?

They don’t pay taxes

OPPORTUNITY #2

The “Primary Designer”

The government owner can give the primary designer the deduction

If more than one designer, the government may determine the primary designer or allocate the deduction to any and all designers

Requirements for Deduction

Have agreement with government in writing

Note: An informed contract officer may ask for a fee reduction (be prepared)

Document eligible costs

Hire an independent engineer or contractor to perform the tests and provide the certification

Include the deduction as an “other deduction” on your tax return

Do not include certification with tax return

Example of Value

100,000 square foot government building

Full deduction - 100,000 x $1.80 = $180,000 deduction

C corporation tax savings is $72,000, marginal tax rate will determine savings for entities other than C-Corporations

If the deduction exceeds taxable income, it will produce a Net Operating Loss (NOL)  

GREAT tool for increasing equity

OPPORTUNITY #3

Building Certification

“A professional engineer licensed in the jurisdiction where the building is located”

Must use software approved by the Department of Energy

List can be obtained at www.eere.energy.gov/

CONCLUSION

A specific set of circumstances must be present to make the deduction worthwhile, in spite of all the attention give to “Green Construction”

Plan to integrate this opportunity as part of the overall Firm strategy

Tax planning can be a motivator for a client to select a firm.

Ideal opportunity to integrate Section 179D with Cost Segregation studies

Questions or Comments?

T. Wayne Owens, CPADeemer Dana & Froehle, LLP

Phone: (678) 242-1302

E-mail: wowens@ddfcpas.com

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