Build Green To Get Green

Reframe

Steve Barnes reveals the real value of energy incentives and credits.

In this episode, show host Jeff Nichols speaks with Steven Barnes, a Partner at Wipfli LLP, a top accounting firm that supports construction and real estate clients. Steve provides a straightforward primer on how energy incentives and credits can be materially significant and how they apply uniquely to commercial and not-for-profit buildings, and he explains how benefits can be allocated or used creatively to offset project costs and fund future initiatives. Find out what Steve means when he says building owners and operators must build green to get green.

Going deeper into this episode: It’s Not Always About Shielding Income

Savvy commercial building owners are drawn to these deductions and credits as they would be to capital asset depreciation and other familiar strategies that lower their taxable income. This tends to drive a higher level of awareness of these incentive programs in the private sector. However, many developers and designers who work on public or not-for-profit buildings are not as up-to-speed on what kinds of benefits are available or how to qualify.

Public buildings like schools, for example, may be looking to replace a dated and inefficient boiler with a renewable system like solar, geothermal, or biomass. These types of upgrades typically qualify for federal incentives under the Investment Tax Credit (ITC) and can range from 6% to 60% credit or cashback on a project.

So why aren’t more builders and building owners taking advantage of these incentives? Much of the reason has to do with the perceived barriers to energy tax incentive availability and qualification.

Here are a few of the top misperceptions:

• Building owners and developers often assume the work they’re doing to upgrade their properties likely won’t qualify or, that the scope of the upgrade wasn’t big enough. The fact is that most work does qualify for significant deductions or credits.

• The bar for qualification is too high so why bother? Actually, the standards for qualification are very achievable, especially for upgrades done within the prior 2-4 years. The main reason for this is that upgrades are compared with previously established ASHRE 2007 standards for energy use and efficiency. Many experts feel that the qualification benchmark is intentionally low to accelerate energy efficiency adoption.

• It’s just too expensive to have my CPA firm look into this and advise me. The reality is that many firms price these consultations at a fraction of the value of the qualified deductions or credits.

The Evolving Energy Tax Advisor

Full-service advisory firms are becoming more capable of navigating their clients through these perceived barriers and challenges. Having these conversations with your tax advisor upfront before the work starts allows for a more comprehensive vetting of upgrade options, CapEx planning, and comparison with current local, state, or federal incentive programs and energy standards.

Energy consultations are also important where a client may be looking to apply for a 179D deduction for example, but instead may find that by the time the work was completed, a more favorable asset depreciation opportunity was available. Another example is with buildings that have commercial space on the ground floor and residential units on higher floors, a properly advised building owner can apply 179D (deduction) and 45L (qualifying credit) thus taking advantage of several programs at the same time. In other scenarios that apply more to public buildings, energy credits can be donated to a scholarship fund or another charitable program and then written off as a donation– some may say ‘double-dipping’.

These are just a few examples of why energy advisory firms are interested in sitting down with their clients to have a more strategic conversion leading to a potentially more beneficial and profitable outcome.

Stay tuned for the next episode of Reframe and join show host Jeff Nichols on a journey of discovery to learn first-hand how the stakeholders and innovators across the building and construction industry are turning energy challenges into opportunities for sustainable growth.

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