A/E Tax Deductions For Green Building


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This webinar shares what building types qualify for tax deductions for A/E/C firms. Learn what Energy Efficient Commerical Property is, the requirements for deduction, who certifies the properties and what the opportunities are for architecture and engineering firms.

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A/E Tax Deductions For Green Building

  1. 1. TAX DEDUCTION FOR GREEN BUILDINGS Presented By T. Wayne Owens, CPA Deemer, Dana & Froehle, LLP
  2. 2. USGBC <ul><li>Founded in 1996 </li></ul><ul><li>U.S. Green Building Council </li></ul><ul><li>a 501(c)(3) non-profit community of leaders working to make green buildings available to everyone within a generation </li></ul><ul><li>Developed and continues to refine the LEED certification </li></ul>
  3. 3. What is LEED Certification? <ul><li>Provides building owners and operators a concise framework for identifying and implementing practical and measurable green building design, construction, operations and maintenance solutions </li></ul><ul><li>A voluntary certification program that can be applied to any building type and any building lifecycle phase. </li></ul>
  4. 4. What Does LEED Cover? <ul><li>Sustainable Sites </li></ul><ul><li>Water Efficiency </li></ul><ul><li>Energy & Atmosphere </li></ul><ul><li>Materials & Resources </li></ul><ul><li>Indoor Environmental Quality </li></ul><ul><li>Locations & Linkages </li></ul><ul><li>Innovation in Design </li></ul>
  6. 6. The Green Building Deduction <ul><li>Part of the Energy Policy Act of 2005 </li></ul><ul><li>Extended through December 31, 2013 by the Emergency Economic Stabilization Act of 2008 </li></ul><ul><li>Provides up to $1.80 per square foot deduction of energy-efficient commercial property </li></ul><ul><li>Available for new construction or upgrading of existing commercial buildings </li></ul>
  7. 7. Building Types Available for Deduction <ul><li>Any commercial building </li></ul><ul><li>Multi-family structures of three or more floors </li></ul><ul><li>Government buildings </li></ul><ul><li>Can include leasehold improvements </li></ul><ul><li>NOTE: buildings owned by non-profit entities (churches, charities, private clubs, etc) do not qualify </li></ul>
  8. 8. What is “Energy Efficient Commercial Property”? <ul><li>Interior lighting systems </li></ul><ul><li>Heating, cooling, ventilation and hot water systems </li></ul><ul><li>Building envelope </li></ul><ul><li>Must be installed on any “building” (affords shelter to persons, animals or property) except single family houses </li></ul><ul><li>Must be in the United States </li></ul>
  9. 9. Energy Efficient <ul><li>LEED certification not a guarantee of deduction </li></ul><ul><li>Separate analysis must be performed and property certified </li></ul><ul><li>Must produce a 50% or more reduction in energy usage compared to a “reference building” </li></ul><ul><li>The reference building must meet the minimum requirements of AASHRE Standard 90.1-2001 </li></ul>
  10. 10. Who Certifies Property? <ul><li>A professional engineer licensed in the jurisdiction where the building is located </li></ul><ul><li>A contractor licensed in the jurisdiction where the building is located </li></ul><ul><li>Qualified computer software must be used to determine the energy savings </li></ul><ul><li>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 </li></ul><ul><li>The report must be prepared in accordance with tax rules </li></ul>
  11. 11. What’s the Catch? <ul><li>For a non-government taxpayer it is a reduction of basis </li></ul><ul><li>The deduction is just rapid depreciation </li></ul><ul><li>Reduces depreciation in future years </li></ul>
  12. 12. WHAT’S IN IT FOR ME?
  13. 13. OPPORTUNITY #1
  14. 14. Value Added Service <ul><li>The rapid depreciation reduces owner’s taxes thus increases cash flow </li></ul><ul><li>Cash flow is very important to developers </li></ul><ul><li>Knowledge of the 179D deduction can be a “differentiator” for a design firm </li></ul><ul><li>Great selling tool </li></ul>
  15. 15. HOW ABOUT THE GOVERNMENT? They don’t pay taxes
  16. 16. OPPORTUNITY #2
  17. 17. The “Primary Designer” <ul><li>The government owner can give the primary designer the deduction </li></ul><ul><li>If more than one designer, the government may determine the primary designer or allocate the deduction to any and all designers </li></ul>
  18. 18. Requirements for Deduction <ul><li>Have agreement with government in writing </li></ul><ul><li>Note: An informed contract officer may ask for a fee reduction (be prepared) </li></ul><ul><li>Document eligible costs </li></ul><ul><li>Hire an independent engineer or contractor to perform the tests and provide the certification </li></ul><ul><li>Include the deduction as an “other deduction” on your tax return </li></ul><ul><li>Do not include certification with tax return </li></ul>
  19. 19. Example of Value <ul><li>100,000 square foot government building </li></ul><ul><li>Full deduction - 100,000 x $1.80 = $180,000 deduction </li></ul><ul><li>C corporation tax savings is $72,000, marginal tax rate will determine savings for entities other than C-Corporations </li></ul><ul><li>If the deduction exceeds taxable income, it will produce a Net Operating Loss (NOL)   </li></ul><ul><li>GREAT tool for increasing equity </li></ul>
  20. 20. OPPORTUNITY #3
  21. 21. Building Certification <ul><li>“ A professional engineer licensed in the jurisdiction where the building is located” </li></ul><ul><li>Must use software approved by the Department of Energy </li></ul><ul><li>List can be obtained at www.eere.energy.gov/ </li></ul>
  22. 22. CONCLUSION <ul><li>A specific set of circumstances must be present to make the deduction worthwhile, in spite of all the attention give to “Green Construction” </li></ul><ul><li>Plan to integrate this opportunity as part of the overall Firm strategy </li></ul><ul><li>Tax planning can be a motivator for a client to select a firm. </li></ul><ul><li>Ideal opportunity to integrate Section 179D with Cost Segregation studies </li></ul>
  23. 23. Questions or Comments? T. Wayne Owens, CPA Deemer Dana & Froehle, LLP Phone: (678) 242-1302 E-mail: [email_address] Axium Axium helps architecture and engineering firms streamline difficult processes and increase profitability with easy to use accounting, project management and business development software. www.axium.com