[ GUIDANCE]
HOW EPAct BUILDING TAX INCENTIVES SUPPORT RETROFITS
WRITTEN BY BY CHARLES R. GOULDING, CPA; CHARLES G. GOULDING; AND RAYMOND KUMAR, CPA
ow completing their seventh year, Energy Policy Act (EPAct) deductions are used increasingly by retrofi tters in the commercial building sector and by designers of government building energy-effi ciency measures. We’ll explain why EPAct tax benefi ts are steadily becoming more popular and where most of the tax incentives are utilized.
SECTION 179D TAX DEFINITIONS Pursuant to EPAct Section 179D, buildings making qualifying energy-reducing invest- ments in their new or existing locations can obtain immediate tax deductions of up to $1.80 per square foot. If the project doesn’t qualify on a “whole building” basis for the maximum $1.80
per square foot immediate tax deduction, there are tax deductions of up to 60 cents per square foot for each of the three major building subsystems: lighting, HVAC and envelope. The building envelope is every item on the building’s exterior perimeter that touches the outside world, including roof, walls, insulation, doors, windows and foundation. The following chart illustrates the magnitude of tax benefi ts available at different square footage breakpoints:
Total
Square Footage
50,000
100,000 150,000 200,000
Lighting HVAC Building Envelope
Minimum Maximum Maximum Maximum Deduction Deduction Deduction
$ 15,000 $ 30,000 $ 30,000 $ 30,000 $ 60,000 $ 60,000 $ 45,000 $ 90,000 $ 90,000
$ 60,000 $ 90,000
$ 60,000 $ 120,000 $ 120,000 $ 120,000 Total
Deduction $ 30,000
$ 90,000 $ 180,000 $ 270,000 $ 360,000
COMMERCIAL BUILDINGS In the commercial sector, EPAct is now being utilized by virtually all major build- ing categories, including warehouses, industrial, retail, hotels, car dealerships and restaurant chains. Because the tax incentive is based on square footage, the biggest benefi ciaries are large buildings and/or property owners with multiple buildings. In the commercial sector, the building categories that most frequently qualify for
the full $1.80 incentives are warehouses, industrial buildings and hotels. In the past year LED lighting retrofi ts have become a very popular category. (Our fi rm has pub- lished articles about each of these categories. The articles are available on our website,
www.energytaxsavers.com.)
16 RETROFIT // November-December 2012
GOVERNMENT BUILDINGS It may be surprising to know that as many, if not more, government buildings have achieved EPAct 179D deductions as com- pared to commercial buildings. For govern- ment projects, the incentive goes to the design party or parties responsible for the energy-effi cient design. Buildings at all levels of government are
eligible for designer tax incentives, includ- ing federal, state and local. Frequent qualify- ing projects include:
Federal – all branches of the U.S. military and all federal departments, including the Veterans Administration
State – state universities (most com- mon), courthouses and state prisons
Local – kindergarten through 12th grade public schools (most common), city halls, police departments and public libraries
One of the most common projects im-
pacting all government agencies is parking garages. EPAct-eligible government garages include city garages, airport garages, state university garages, community college garages, VA hospital garages, state hospitals, sports stadiums and convention centers.
CATCHING UP ON MISSED DEDUCTIONS In January 2011, the Washington, D.C.-based Internal Revenue Service released Rev. Proc. 2011-14, which enables all property owners to catch up on missed EPAct deductions. Conveniently, the deductions can be report- ed on the current-year tax return without having to amend returns from previous years. The retroactive fi ling is accomplished by fi ling tax form 3115 with the building
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