tax incentives & special funding
Many federal, state and local governments have begun to adopt various types of initiatives and incentives to entice individuals to build green. Green-Source Products provides in-house services to help you identify and take advantage of tax credits and incentives that may apply to your particular building project. With procedures and technology approved by the IRS, Green-Source Products will prepare an Energy Tax Credit evaluation if you utilize HPGBS™. To learn more about this service, continue reading or contact us.
Consulting Services
| • | Energy Tax Credit Evaluation |
| • | MEP Review & Analysis |
| • | Estimating |
| • | State Financial Incentive Program Analysis |
The Energy Policy Act of 2005:
A tax deduction for investments in “energy efficient commercial building property” designed to significantly reduce the heating, cooling, etc which must be placed in service between January 1, 2006 and December 31, 2008.
A tax credit can provide significant savings. It reduces the amount of income tax you have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a tax credit directly reduces the tax itself. You must refer to the final Internal Revenue Service (IRS) rules to determine what qualifies for the tax credit.
| The Energy Policy Act of 2005 includes: |
| • | Tax Credits for Consumers |
| • | Tax Credits for Home Builders |
| • | Tax Deductions for Commercial Buildings |
Tax Credits for Consumers: Home Improvements
The Internal Revenue Service (IRS) has provided guidance for consumers: IRS Notice 2006-27. Tax credits are available for many types of home improvements including adding insulation, replacement windows, and certain high efficiency heating and cooling equipment.
The maximum amount of homeowner credit for all improvements combined is $500 during the two year period of the tax credit. This tax credit applies to improvements made from January 1, 2006 through December 31, 2007.
If you are building a new home, you do not qualify for the tax credits for "eligible building envelope components" (windows, doors, insulation, roofs) or "qualified energy property" (HVAC & non-solar water heaters). However, the tax credit for photovoltaics, solar water heating, and fuel cells is available for homeowners building new homes.
Tax Credits for Home Builders
The Internal Revenue Service (IRS) has provided the following guidance regarding the tax credits for constructing energy efficient new homes available under the Energy Policy Act of 2005:
IRS Notice 2006-27 provides guidance for the credit for building energy efficient homes other than manufactured homes.
IRS Notice 2006-28 provides guidance for the credit for building energy efficient manufactured homes.
The tax credit information provided below is based on information contained in the Energy Policy Act of 2005. The IRS guidance provides specific information that home builders and housing manufacturers can rely on to take action to claim the tax credits. ENERGY STAR will study the IRS publications and provide updates as necessary.
Home builders are eligible for a $2,000 tax credit for a new energy efficient home that achieves 50 percent energy savings for heating and cooling over the 2004 International Energy Conservation Code (IECC) and supplements. At least 1/5 of the energy savings must come from building envelope improvements. This credit also applies to contractors of manufactured homes conforming to Federal Manufactured Home Construction and Safety Standards.
There is also a $1,000 tax credit to the producer of a new manufactured home achieving 30 percent energy savings for heating and cooling over the 2004 IECC and supplements (at least 1/3 of the savings must come from building envelope improvements), or a manufactured home meeting the requirements established by EPA under the ENERGY STAR program.
Please note that, with the exception of the tax credit for an ENERGY STAR qualified manufactured home, these tax credits are not directly linked to ENERGY STAR. Therefore, a builder of an ENERGY STAR qualified home may be eligible for a tax credit but it is not guaranteed.
These tax credits apply to new homes located in the United States whose construction is substantially completed after August 8, 2005 and that are acquired from the eligible contractor after December 31, 2005 and before January 1, 2008, for use as a residence.
Tax Deductions for Commercial Buildings
A tax deduction of up to $1.80 per square foot is available to owners or designers of new or existing commercial buildings that save at least 50% of the heating and cooling energy of a building that meets ASHRAE Standard 90.1-2001. Partial deductions of up to $.60 per square foot can be taken for measures affecting any one of three building systems: the building envelope, lighting, or heating and cooling systems. These deductions are available for buildings or systems placed in service from January 1, 2006, through December 31, 2007.
IRS Notice 2006-52 (6/2/2006) provides guidance on deduction for energy efficient commercial buildings. IRS News Release on above notice ENERGY STAR Brochure for Commercial Tax Deductions Commercial Building Tax Deduction Coalition.
About Energy Tax Credits
Green-Source Products has the construction product and will assist you with your financial solution that results in increased cash flow, minimized tax payments and increased ROI.
What is the value of the Energy Tax Credits? A tax credit is more valuable than the equivalent tax deduction because a tax credit reduces tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed. Beginning in tax year 2006, consumers were able to itemize purchases from their federal income tax, which effectively lowers the total amount of tax they owe the government.
To qualify for full credit
A building owner or tenant must make investments designed to reduce energy costs by 50% or more. A partial credit of $.60 per square foot is available for retrofit and by, Designing to reduce energy costs by 16 and 2/3% (i.e., one-third of the 50% requirement).
The person or organization that pays for construction is generally the recipient of the credit. For government-owned buildings, the person primarily responsible for designing the building or project may be able to claim the credit.
here’s how
Assess the current energy use of your building (s)
This establishes a reference using EPA’s national energy performance rating system (www.energystar.gov/benchmark)
Simple as a 1-to-100 scale. 1 being the least efficient and 100 being the most.
certification of energy efficiency
In accordance with the request for a certificate required for the deduction for energy efficient commercial buildings §179D of the Internal Revenue Code states guidelines for the newly installed: HVAC, hot water and building envelope.
Green-Source Products can assist building owners toward the approval for the certification process in accordance with: Section 1331 of the Energy Policy Act of 2005,Pub. L. No. 109-58, 119 Sta. 594 (2005) enacted §179D of the Internal Revenue Code.
section 1331 overview
The ENERGY POLICY ACT OF 2005 provides for and allows:
A deduction for energy efficient commercial buildings that reduce annual energy and power consumption by 50%. Compared to the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) standard.
The deduction equals the cost of energy efficient property installed during construction with a maximum deduction of $1.80 per square foot of the building. Additionally, a partial deduction of $.60 per square foot is provided for building sub-systems.
method of computation
The Performance Rating Method (PRM) must be used to compute the percentage reduction in:
Total annual energy and power costs with respect to combined usage of a building’s heating, cooling system.
As compared to the minimum requirements of ASHRAE Standard 90.1-2001.
Economic Benefits of Using HPGBS
| How to analyze income of a commercial real estate property. If you are analyzing income of a commercial property, you must remember that there are three basic methods to asses its value: |
| • | Income approach |
| • | Sales-comparison approach |
| • | Cost approach |
Due to the rapid increase in property values, the lack of comparables makes the sales-comparison approach fairly unreliable. Very little weight is given to the cost approach unless segregated, but the income approach involves the capitalization of income and therefore, the preferred method of value for investors and banks.
Competitive first costs - Integrated design allows high benefit at low cost by achieving synergies between disciplines and between technologies, reduces operating costs, lowers utility costs significantly, optimize life-cycle economic performance.
(Green) building owners expect decreases of operating costs between 8% and 9%
Average increases expected of around 7.5% in building values
An ROI improvement of 6.6%
Occupancy ratio expected to increase by 3.5% on average and rent increasing by 3% on average.
Increase building valuation and ROI
Using the income-capitalization method:
Asset value = net operating income/Divided by the capitalization rate
Value=NOI/Return
If the cap rate is 10%, divide the reduction in annual operating costs by 10% to calculate the increase in the building’s asset value
Example; If the subject’s net operating income is $100,000 per year (before debt service and depreciation) and if the cap rate is 10%t, then the indicated value would be US$1,000,000 ($100,000/0.10).
A going-in (overall) capitalization (cap) rate is usually defined as the first year net operating income (NOI), (before capital items of tenant improvements and leasing commissions and debt service but after real estate taxes) divided by the purchase price.
Quantify financial benefit in terms of Return On Investment (ROI) instead of payback time.
Decrease vacancy, improve retention, marketing advantages reduce liability and improve risk management.
Today’s LEED Trends
A whole-building approach encourages and guides a collaborative, integrated design and construction process. Also optimizes environmental and economic factors.
Owner Types
building Types
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