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Engineering 179D Tax Deduction and Cost Segregation
- 1. “Engineering Tax Today” Engineering Based Cost Segregation §179D Energy Efficient Building Deduction §45L Energy Efficient Home Credit
- 2. What will this presentation cover? › Presenter and Attendee Introductions – 5 Minutes › About National Cost– 5 Minutes › Engineering Based Cost Segregation – 5 Minutes › §179D Energy Efficient Building Deduction – 10 Minutes › §45L Energy Efficient Home Credit – 10 Minutes › New Profit Center – 5 Minutes › Questions and Answers – 20 Minutes Introduction to National Cost
- 3. About National Cost About NCC › Multidisciplined Engineering and Cost Reduction Firm › Started as a Cost Segregation Company Primary Services Include: › Cost Segregation › 179D › 45L › Repair v. Capitalization Studies › Facility Maintenance Programs › Replacement Reserve Studies › Building Commissioning › LEED Certification
- 4. Our Mission: “To be known as experts in our industry providing technical financial and engineering services at competitive rates while adding value through sharing and applying the latest knowledge, innovations and best practices of our ever changing field.” About National Cost About NCC
- 5. Constructed Purchased Remodeled What is a cost segregation study? Cost Segregation
- 6. What is a cost segregation study? Cost Segregation $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 Total Accumulated Depreciation With vs Without Cost Segregation Total Accumulated Depreciation Without Cost Segregation Study (39 Year Straight-Line)
- 7. $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 Total Accumulated Depreciation With vs Without Cost Segregation Total Accumulated Depreciation With Cost Segregation Study Total Accumulated Depreciation Without Cost Segregation Study (39 Year Straight-Line) What is a cost segregation study? Cost Segregation
- 8. What is a cost segregation study? 5 Year Property 625,000 25.00% 7 Year Property: 125,000 5.00% 15 Year Property: 250,000 10.00% 39 Year Property: 1,500,000 60.00% Segregation Basis: $2,500,000.00 Cost Segregation
- 9. Property Type Typical Reallocation Percentages Warehouses 15% - 25% Marinas 15% - 35% Private Schools 20% - 45% Apartment Buildings 20% - 40% Retail Buildings 25% - 35% Sports Complexes 25% - 40% Auto Dealerships 25% - 50% Hotel 25% - 35% Restaurant 25% - 35% Medical Facility 25% - 45% Golf Course 25% - 40% Manufacturing Facility 30% - 50% Data Center 30% - 50% What types of properties are right for cost segregation? Cost Segregation
- 10. 15 Year Property › Parking lots and pavement › Landscaping › Wheel stops, striping and lighting › Signage › Fencing What types of components are accelerated? Cost Segregation
- 11. What types of components are accelerated? 5/7 Year Property › Millwork › Computer based telephone equipment › Machinery and equipment › Decorative light fixtures › Floor coverings › Cabinetry › Plumbing components › Furniture › Electrical components Cost Segregation
- 12. › Reduction in property taxes. › Decreased insurance premiums. › Future bank loan qualifications. › A better understanding the true asset life span and future replacement costs. What are the other benefits? Cost Segregation
- 13. › IRS Recommended Cost Segregation Why use engineers?
- 14. › Cost Data › Building Plans › Lease Agreements › Site Inspection › Indirect Cost Allocation Why use engineers? Cost Segregation
- 15. › Preparation By An Individual With Expertise And Experience › Detailed Description Of The Methodology › Use Of Appropriate Documentation › Interviews Conducted With Appropriate Parties › Use Of A Common Nomenclature › Use Of A Standard Numbering System › Explanation Of The Legal Analysis › Determination Of Unit Costs And Engineering "Take-Offs" › Organization Of Assets Into Lists Or Groups › Reconciliation Of Total Allocated Costs To Total Actual Costs › Explanation Of The Treatment Of Indirect Costs › Identification And Listing Of Section 1245 Property › Consideration Of Related Aspects (e.g., IRC § 263A, Change In Accounting Method And Sampling Techniques) The 13 principle elements of a quality study Cost Segregation
- 16. §179D Energy Efficient Building Tax Deduction §179D Tax Deduction
- 17. What is the §179D Tax Deduction? › New Construction or Renovations › Placed in service dates › After January 1, 2006 › Prior to December 31, 2013 §179D Tax Deduction
- 18. How Much is the Deduction? › $0.60 / SF for HVAC › $0.60 / SF for Building Envelope › $0.30 - $0.60 / SF for Lighting §179D Tax Deduction
- 19. Potential Deduction Amount Building Size Potential Deduction Amount 20,000 SF $36,000 50,000 SF $90,000 100,000 SF $180,000 250,000 SF $450,000 500,000 SF $900,000 §179D Tax Deduction
- 20. Who can take the deduction? › Commercial building owners › Designers of public or government buildings §179D Tax Deduction
- 21. What amount of energy efficiency is required? › 50% reduced energy based on 2001 standards Partial Qualification › 10% Envelope › 15% HVAC › 25% Lighting §179D Tax Deduction
- 22. What other requirements must be met? › 3rd party certification › Field inspection by licensed PE › Depreciation (or amortization in lieu of depreciation) is allowable on the property; and the property must be placed in service between January 1st, 2006 and December 31st, 2013; › The property is installed on or in any building located in the United States and is within the scope of Standard 90.1-2001; › Energy reduction is met. §179D Tax Deduction
- 23. How is the deduction taken? › Current Year = Other Deduction › Prior Year = Amend Returns §179D Tax Deduction
- 24. What other options are available for prior years? › Revenue Procedure 2011-14 › Amending tax return not required › Form 3115 (Application for Change in Accounting Method) › Designers must amend returns for prior years §179D Tax Deduction
- 25. §45L Energy Efficient Home Credit §45L Tax Credit
- 26. What is it? › Tax Credit › Properties constructed after August 8, 2005 › Sold or leased between January 1, 2006 and December 31, 2011 §45L Tax Credit
- 27. How much is the credit? › $2,000 for: › Single family homes › Apartments › Condominiums › Duplexes › $1,000 for: › Manufactured homes §45L Tax Credit
- 28. Potential Credit Amount Number of Homes Potential Credits 20 Units $40,000 50 Units $100,000 100 Units $200,000 200 Units $400,000 500 Units $1,000,000 §45L Tax Credit
- 29. Who can take the credit? › Contractors and Builders › Must have a basis in the home §45L Tax Credit
- 30. What amount of energy efficiency is required? › 50% reduction based on the 2003 energy standards › 30% reduction for manufactured homes §45L Tax Credit
- 31. What systems are included? › HVAC › Building envelope (must account for 10%) §45L Tax Credit
- 32. Qualifying Property › IRS Notice 2006-27 › Properties must be substantially completed after August 8, 2005. › Qualifying properties must be sold or leased during the tax year the credit is being claimed. › The dwelling must show at least a 50 percent reduction in energy consumption › At least 10 percent of the energy savings associated with heating and cooling must be derived from attributes associated with the building envelope §45L Tax Credit
- 33. How is the credit taken? › IRS Form 8908 §45L Tax Credit
- 34. What about prior years? › Amend returns §45L Tax Credit
- 35. National Cost Process › Step 1. Consultation › Step 2. Proposal and Feasibility › Step 3. Engagement Letter › Step 4. Constructing the Report › Step 5. Delivery Process
- 36. Why National Cost? › 100% Audit Guarantee › Cost segregation studies follow all IRS guidelines and most recent case law › Specialize in Engineering Tax Services › Energy studies use either Trane Trace 700 and Energy Gauge to determine reduction in energy usage. Why National Cost?