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§179D EPAct and Tax Incentives

§179D EPAct and Tax Incentives. Presented by: Ernst & Morris Consulting Group, Inc. & Energy Tax Savers, Inc. Topics. EPAct(Section 179D) Available for Energy Efficient Building Projects: Lighting HVAC Building Envelope Alternative Energy Tax Incentives Solar, Geothermal, CHP

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§179D EPAct and Tax Incentives

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  1. §179D EPAct and Tax Incentives Presented by: Ernst & Morris Consulting Group, Inc. & Energy Tax Savers, Inc.

  2. Topics • EPAct(Section 179D) • Available for Energy Efficient Building Projects: • Lighting • HVAC • Building Envelope • Alternative Energy Tax Incentives • Solar, Geothermal, CHP • Bonus Depreciation

  3. Energy Policy Act of 2005 (EPAct) • Extended through 12/31/13 • Benefits available from 1/1/06 thru 12/31/13 • Incentivized areas: • Lighting • HVAC • Building envelope • Available for New Construction and Existing Buildings • Also available for tenant owned lease-hold improvements • Benefit available for Primary Designers on Government Projects

  4. Chat Questions • Wal*Mart leases a space from Landlord. After 5 years in the space, Wal*Mart decides to upgrade to energy efficient lighting. Wal*Mart pays an electric installer to do the upgrade. Who gets the 179D tax deduction? • Avalon builds the nations most energy efficient 1000 unit garden apartment complex. Can they qualify for Section 179D? • Green Depot puts Solar Panels on their 1950’s(never been updated) warehouse. The panels reduce the buildings outside electrical needs to Zero. Can Green Depot take a Section 179D deduction? • General Motors installs energy efficient lighting in one of its manufacturing facilities. Can GM take advantage of Section 179D?

  5. Important IRS Notice Rev. Proc. 2011-14 • Taxpayers can now use 3115 process to catch up on all missed EPAct deductions • Great for 2006/2007 new construction and retrofits • Excellent for investor groups to avoid amended individual returns • Many property owners are combining prior and current projects for the $1.80

  6. Who’s using EPAct?

  7. What’s it Worth? *Note – with government buildings, the benefit goes to the primary designer

  8. Chat Questions • How much did the Primary Designer pay for the new lighting system for a new public High School? • What was the Income Tax Liability for our Primary Designer Client that only designs K-12 schools in: • 2006? • 2007? • 2008? • 2009? • 2010-13? • Do you have any A & E clients that might be • interested?

  9. Commercial Building Immediate Deductions Stimulus Package emphasizes Energy Efficiency in Government Buildings Architects/Engineers/Lighting Designers DOE goal to incentivize green design in government building sector Benefits passed through to the primary designer of: Federal offices, military bases, court houses, post office, labs etc. State offices, transportation facilities, state universities, court houses etc. County, city, town, village etc offices, schools, town halls, police, fire, libraries etc.

  10. What’s in it for Architects/Engineers/Lighting Designers? Growth in this EPAct area for government building designers is exploding Successful Design Niches: K-12 Public Schools State Universities and Colleges Military Bases Parking Garages Airports

  11. Allocation of $120,000 Tax DeductionGovernment Buildings Only

  12. How do you Qualify? Mechanics • Deductions based on improvements over ASHRAE 90.1 2001 • Energy efficient improvements must be depreciable assets • Converts 39 year depreciation to current deduction • Available for installations completed between 1/1/06 & 12/31/13 • Can begin in prior years • Deduction amounts: • Lesser of total cost or: • $1.80/sq.ft. Whole Building • $0.60/sq.ft. Individual Systems • Lighting • HVAC • Building Envelope ASHRAE (American Society of Heating, Refrigerating and Air-Conditioning Engineers) HVAC (Heating, Ventilation & Air Conditioning)

  13. 8 Ways to Capture Tax Deduction • (1)Whole Building ($1.80/ft2) • 50% Energy Cost Reduction below standard • Permanent Rules partial deduction ($0.60/ft2) • (8)Interim Lighting Rules ($0.30/ft2-$0.60/ft2) • 25% to 40% prescribed Light Power Density (LPD) reduction below standard

  14. Chat Questions • What is the maximum potential tax deduction for: • 100,000 sq.ft. lighting project for a new casino? • 100,000 sq.ft. lighting project for a commercial office building? • 100,000 sq.ft. lighting project for an IRS office building? • Who gets the Tax Deduction? • 100,000 sq.ft. lighting project for a Red Cross office building? • 100,000 sq.ft. lighting project for a commercial warehouse?

  15. Where are the Benefits • Lighting, Lighting, Lighting • Lighting Controls • Specific Types of HVAC • Geothermal • Thermal Storage • Central Chiller plants with small buildings(<150,000sq.ft.) in Campus • LEED Buildings

  16. Interim Lighting Rules • Meet W/ft2 targets • Add’l Requirements • Bi-level Switching • Meet ASHRAE 90.1 Requirements • Meet IESNA minimum light levels LPD (Light Power Density)

  17. Chat Questions • Does the room your sitting in have Bi-level Switching? • How? • What is the Watts/Sq.ft. of your Room? • If you are lit by 4 ft. fluorescent tubes assume 28 watts for each tube in your space. Some fixtures have two tubes, others 3 or 4. • How many tubes(lamps) are in your fixtures? • To measure sq.ft. count the ceiling tiles • Do you have 2’ x 4’ ceiling tiles or 2’ x 2’ ceiling tiles?

  18. Definition of Bi-Level Switching • A room, as defined by floor to ceiling walls, must have at least two light levels other than “on and off”. • This can be met in a number of ways: • Dimming ballasts create an infinite number of light levels • 50% of lights in a room on one switch, 50% on another or 60/40, 70/30… • Occupancy controls on separate lighting circuits • Even lights on at least 2 separate circuit breakers would technically qualify • Exceptions • Storerooms, Restrooms, Lobbies, Hotel & Motel Guestrooms, and Garages

  19. Benefiting from ASHRAE 2004 & 2003 IECC

  20. Commercial Energy Codes

  21. Federal Building Energy Code Standards • As of 12/31/2010 all states are required to have codes at ASHRAE 2004 or better • Impacts new construction and major retrofits • This is a big change for states at no or older energy codes • States must certify they are at this level or justify why they are not

  22. Chat Questions • Do you reside in one of the 35 states? • Do you have clients doing any new construction? • What type of Building? • Is it in a category where the building code automatically put them in the Watts/sq.ft. zone for tax deductions?

  23. Major Lighting Bans ¹ Residential is excluded from the ban, provided power factor is less than 0.90. • ² Potential replacements • High efficiency incandescents • CFL’s • Induction • LEDs

  24. Biggest EPAct Growth Area LED LED LED

  25. Lighting Retrofit Economics(For Existing Buildings) • Energy Savings is usually the main driver • In some states, Utilities offer Rebates for energy efficient lighting Installations • Tax Savings is the newest opportunity • Demand Response is another potential income stream • Capitalizing on all the incentives can bring payback for projects to below 2 years and in some cases less than 1 year

  26. Retrofit Math 100,000 sq.ft. Warehouse 250 Metal Halides replaced with HiBay Fluorescents • Cost of Project = $75,000 (Assumes $300/fixture installed) • Annual Energy Savings = $24,461/yr • 250 x (0.458 kW-0.234 kW) x 12 hrs/day x 7 day/wk x 52 wk/yr x $0.10/kWh • Rebate = $24,600 • This is a sample rebate, using LIPA’s rebates. Some areas have no rebate system others have larger rebates. • Added PV of Tax Deduction = $13,461 • 40% combined tax rate, 8% discount rate, compared to 39 yr depreciation removed(expensed) in year 15 • Payback = 1.5 Years • IRR = 58% Without rebate, Payback = 2.5 yrs, IRR = 37%

  27. Chat Questions • Do you have clients doing Lighting retrofits? • If no, Do you have clients with lighting like this? • Should they be retrofitting?

  28. What Tends to Qualify on the HVAC side? Geothermal (Ground Source Heat Pumps) Thermal Storage High Efficiency VRF units in Rental Apartments/Dorms/Hotels Centralized HVAC in Rental Apartments/Dorms/Hotels Energy Recovery Ventilation Demand Control Ventilation Chillers in buildings < 150,000 sq ft Direct fired heaters in no AC Industrial Spaces VAV (variable air volume devices) in buildings <75,000 sq ft Chilled Beam Magnetic Bearing Chillers Gas fired chillers combined with electric chillers to peak shave

  29. Non-conditioned Energy Overview • In heated only warehouse, industrial and self storage spaces (non air conditioned spaces) lighting is the biggest energy user. -Typically lighting makes up 60-70% of building energy use with heating making up the 40-30% difference

  30. Warehouse Heater & Efficient Lighting

  31. For Non-Conditioned Buildings • Step 1: • Put in energy efficient lighting at the EPAct level • Step 2: • Put in an energy efficient heater • Step 3: • Use excess deductions for your roof

  32. Step 1: Lighting • The key is to reduce the wattage levels to the EPAct target levels. • This process will result in a large energy cost reduction. • Achieves large tax deductions at the 60 cent per square foot level.

  33. Step 2: HVAC • Non-conditioned buildings • Install very energy efficient heaters. • Many clients utilize Cambridge direct fired heaters.

  34. Step 3: Physical Shape • Pre-solar • All worn and aged roofs need to be upgraded. • Good time to consider added insulation • Certain solar systems a white reflective roof • Move rooftop equipment, including upgrade HVAC off of the roof • Strategy: Use the lighting and HVAC tax upgrades (above) to drive large tax deductions for roof improvements.

  35. Project general information Square footage Lighting projects CAD drawings (.dwg or .dwf), Architectural & Electrical sets Fixture schedule New Construction Data Requirements

  36. Retrofit Lighting Data Requirements • Project general information • Square footage of each space • Bi-level lighting confirmation • Invoices (both material & labor) • Fixture descriptions (model number, Lamp count, ballast type) • Fixture count (new and retained) • Foot candle of rooms *most efficient for Energy Team to work with contractor

  37. Energy “Modeling” required for HVAC & Envelope • HVAC and Building Envelope • Modeling required (IRS Approved) • No partial deductions • Almost exclusively new construction and • Geothermal • Thermal Storage • LEED (Leadership in Energy & Environmental Design) certified

  38. Chat Questions • Do you have clients building LEED buildings? • Putting in Geothermal? • Putting in Thermal Storage?

  39. Understanding Energy Models • IRS has approved thirteen types of modeling software • eQUEST, Trane Trace 700, Energy Plus, Carrier HAP, VisualDOE, EnergyGauge, DOE2.2, DOE2.1E & 2.1E-JJH, Owens Corning Commercial Energy Calculator, Green Building Studio, EnerSim, IES <Virtual Environments> • other submissions are in process • Important modern Energy management tool. • Currently required for all HVAC and building envelope deductions and for whole building lighting alternative. • In many jurisdictions, rebates are provided for all or substantial portions of modeling costs.

  40. Best Opportunities • Architect & Engineering firms doing Government Projects • Large spaces - tax deduction is based on square footage • Cost segregation projects for new and/or retrofit construction (post 1/1/2006) • LEED Buildings (gold & platinum) • Owners of buildings > 50,000 sq. ft. investing in energy efficient lighting

  41. CPA firms can Expand Service Offerings

  42. American Recovery and Reinvestment Act of 2009Tax Credits & Grants in Lieu of Tax Credits *For the first time in U.S. Tax History 100% of the cost of an alternative energy project can be expensed for tax purposes for projects completed after September 8, 2010 and before December 31, 2011. *Also cash grants equivalent to the 30% and 10% credit amounts are available through December 31, 2011

  43. What We Deliver • Pre-project EPAct Marketing Material • Complimentary Design Analysis • Complimentary Tax Benefit Assessment • Comprehensive EPAct Tax Package

  44. 100% Bonus Depreciation • Placed in Service between 9/9/2010 and 12/31/2011 • Tax Depreciation Schedules less than 20yrs • Examples • Alternative Energy(Solar, Wind, Geothermal, etc.) • Outdoor Lighting not affixed to the building • Qualified leasehold improvements • Non structural interior improvements to non residential real property pursuant to a lease. • Building must be at least 3 years old • Original use must commence with taxpayer

  45. Energy Tax Savers Inc. http://www.costsegandenergycom/ Ernst & Morris Consulting Group, Inc. 2190 Dallas Highway Marietta, Georgia 30064 1-800-267-8734 Jacob Goldman jacob.goldman@energytaxsavers.com Michelle Arnold marnold@costseg.com

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