Greening your business may translate to greenbacks for your business.
Below is a summary of several of the current federal programs that offer tax credits and deductions, bonds and grants to encourage energy efficiency and sustainable development in both new and existing projects. While many of these federal programs are geared to developers, builders and energy utilities, federal assistance may also be available to any business that owns a fleet of vehicles or a manufacturing facility and invests in renewable energy technology.
Energy Efficient Building Deduction
A tax deduction of up to $1.80 per square foot is available for certain commercial and residential buildings that save at least 50 percent of the interior lighting, hot water, ventilation, heating and cooling energy costs of a comparable building that meets the American Society of Heating, Refrigerating and Air Conditioning Engineers' and the Illuminating Engineering Society of North America's minimum energy efficiency requirements for buildings. In addition,
- Partial deductions are available for certain energy saving measures involving the building envelope, interior lighting and HVAC systems.
- Retrofit of existing buildings qualifies for the deduction.
- The project must be certified pursuant to Department of Energy (DOE) guidelines by a qualified inspector.
- Taxpayers can claim this deduction for any project placed into service after December 31, 2005, and before January 1, 2014.
New Energy Efficient Home Credit
The new energy efficient home credit of $2,000.00 per home is available to home and residential condominium builders.
The home must be (i) located in the U.S., (ii) substantially completed after August 8, 2005, (iii) sold by the builder after December 31, 2005, and before January 1, 2010, and (iv) certified by a qualified inspector in accordance with guidelines to achieve at least a 50 percent reduction in heating and cooling energy consumption compared with certain international and DOE standards. Certain manufactured homes meeting a 30 percent reduction standard may be entitled to a $1,000 credit.
The credit can only be taken by the builder for the taxable year in which the home is sold to a homebuyer for use as a residence.
Alternative Vehicle Tax Credit
The alternative motor vehicle credit is available for each fuel cell, hybrid, advanced lean burn and alternative fuel vehicle placed in service by a business or non-business taxpayer during a taxable year. The credit is available for purchased and leased qualifying vehicles (although the leasing company may claim the credit which should be the subject of negotiation when leasing company cars). A limited number of credits is available. Credits on some passenger car models, including the Honda Civic Hybrid and the Toyota Prius, have already been phased out and others are nearing the phase-out point. See list of all eligible vehicles and phase-out dates.
Renewable Electricity Production Tax Credit
This tax credit is available to producers of electricity from renewable energy, including solar (if placed into service before January 1, 2006), biomass and wind (if placed into service before January 1, 2013), who sell electricity to unrelated parties. The amount of the credit depends on the technology and is subject to an annual inflation adjustment. For 2009 the credit for electricity produced from solar or wind is 2.1 cents per kilowatt hour. Most other renewable resource types are eligible for the credit if placed into service before January 1, 2014.
Business Energy Investment Tax Credit
In lieu of the renewable electricity production credit, a taxpayer may take the energy investment tax credit for property placed in service after December 31, 2008, and before January 1, 2017, as set forth below:
- Solar energy property: A credit equal to 30 percent of expenditures with no maximum credit for any new property that uses solar energy to (i) heat or cool a structure, (ii) provide solar process heat, or (iii) generate electricity. For such property placed in service after December 31, 2016, the credit is 10 percent.
- Fuel Cells: A credit equal to 30 percent of expenditures with no maximum credit, but there are caps on some elements of the credit and certain qualifications.
- Small Wind Turbines: A credit equal to 30 percent of expenditures with no maximum credit for certain small wind turbines.
- Microturbines: A credit equal to 10 percent of expenditures with no maximum credit, but there are certain qualifications.
The taxpayer generally must be the original owner of the system.
Advanced Energy Investment Credit
The American Recovery and Reinvestment Act provides for a tax credit of 30 percent of qualified investment in any qualifying advanced energy project which re-equips, expands or establishes a manufacturing facility that produces:
- Property designed to produce energy from the sun, wind, geothermal deposits or other renewable resources.
- Fuel cells, microturbines or an energy storage system for use with electric or hybrid-electric motor vehicles.
- Electric grids for transmission and storage of intermittent sources of renewable energy.
- Property designed to capture and sequester carbon dioxide.
- Property designed to refine or blend renewable fuels or to produce energy conservation technologies (such as lighting and smart grid technologies).
- New qualified plug-in electric drive motor vehicles or components of such vehicles.
- Other property designed to reduce greenhouse gas emissions.
The project must be certified by the DOE and must be placed in service within three years of certification. The aggregate amount of credits under this program cannot exceed $2.3 billion.
Payments for Specified Renewable Energy Property in Lieu of Tax Credits (Section 1603 Payments)
Instead of the above-described electricity production and business energy investment tax credits, certain taxpayers can elect to receive cash payments for placing in service certain qualified renewable energy property. The taxpayer generally must be the owner of the property and must have originally placed the property in service or commenced construction of the project during 2009 or 2010. Payments may be up to 30 percent of the basis of the eligible energy property, depending on the type of technology used. Taxpayers must apply online before October 1, 2011. Section 1603 payments will be phased out between 2013 and 2017, depending on the type of property.
Qualified Energy Conservation Bonds
Qualified energy conservation bonds ("QEC Bonds") are tax credit bonds funded by the federal government and issued by state or local governments to individuals or entities for a "qualified conservation purpose," including capital expenditures for reducing energy consumption in publicly owned buildings and implementing green community programs. IRS Notice 2009-29 lists each state's or local government's portion of the QEC Bond funds. Nationally, this program expires when a volume cap of $3.2 billion is reached.
Qualified Green Building and Sustainable Design Project Bonds
State and local governments are authorized to issue up to two billion dollars in tax-free bonds to provide funding for environmentally sustainable projects which must include: (i) LEED certification, (ii) brownfield redevelopment, (iii) state or local financial support, (iv) one million square feet of building or 20 acres (contiguity of parcels is not required), (v) creation of at least 1,000 construction jobs and at least 1,500 full-time permanent jobs after completion, (vi) use of proceeds only for the sustainable design, energy, LEED certificate compliance or brownfield components of the product, and (vii) proof that the development does not include a professional sports arena or a facility the principal business of which is the sale of food or alcoholic beverages for consumption on the premises. While tax-free bonds may make some projects of this scale feasible, the lack of additional financing available in today's economy makes this program of limited applicability. These bonds are available until September 30, 2012.
Most of the above incentives will expire over the next five years. In addition, we expect some form of national building code to pass this year, under which states and local governments will be required to adopt new building codes requiring energy efficiency in all new buildings. There may be some overlap between the expiration of current incentives and adoption of the national building code, and builders may want to take advantage of the current incentives now in order to become familiar with the standards that will likely be mandatory in the near future.