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February 2010
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Finance and Taxes: Tax incentives can lessen the cost of going green
Going “green” is on everyone’s mind these days, including chiropractors.
Although there are usually substantial costs associated with saving energy, provisions in our tax laws — benefits that increased significantly with last fall’s “bailout” bill — can help offset some of those higher, upfront costs. The passage of the American Recovery and Reinvestment Act early in 2009 refined and extended several, already existing, energy incentives.
Lawmakers pushing for yet another economic stimulus bill appear focused on the big picture, including clean renewable energy bonds and conservation bonds, to provide the funding needed by those attempting to “go green.”
Provisions extending the renewable energy production credit and creating new research and development tax credits are another approach lawmakers reportedly favor. However, our federal tax laws already contain a variety of tax savings for those wishing to achieve energy savings.
Tax-incentive programs offered by federal, local, and state governments, combined with programs offered by utility companies, have long helped businesses overcome the relatively high front-end costs of achieving energy efficiency or savings.
Today, tax incentives not only reduce the cost of acquiring and installing energy efficient products, they also reduce the day-to-day costs of operating your practice.
New life for old energy-related tax breaks
As part of the Emergency Economic Stabilization Act of 2008 (EESA), several energy-related tax credits had their lives extended. Solar landed an eight-year extension for an existing 30 percent tax credit for residential and commercial solar installations, while a $2,000 cap for deducting the cost of installing these systems was removed.
Tax credits, those direct reductions of your tax bills as opposed to a “deduction” that merely reduces the annual tax bill, are not the only tax-related benefits for achieving energy efficiency. However, the so-called “green buildings” tax credit is an important incentive offered to the owners of commercial buildings under federal tax laws.
Commercial buildings
Tax breaks are now available for commercial buildings, creating significant incentives for making those properties more energy efficient.
Owners can get tax deductions for new or renovated commercial buildings that save 50 percent or more of projected annual energy costs for heating, cooling, and lighting compared to model national standards. Partial deductions are also available for efficiency improvements to individual lighting, HVAC and water heating, or envelope systems.
Rather than a deduction for the actual equipment cost or systems purchased to make a commercial building more energy efficient, a flat tax deduction of up to $1.80 per square foot is available.
Only buildings covered by the scope of the American Society of Heating, Refrigeration and Air Conditioning Engineers’ (ASHRAE) Standard 90-1-2001 are eligible. A partial deduction of $0.60 per square foot can be taken for improvements made to one of three building systems — the building envelope, lighting or heating, and cooling system.
Saving tax while saving energy
Not all practices fall in the “commercial” building category, however, an increasing number do employ solar heating or lighting in their businesses. Increasing numbers are also installing on-site wind systems, and many are eligible for tax credits.
Qualifying equipment will either use solar energy to generate electricity or to illuminate the inside of a building by means of fiber-optic
Tax credits are available to those installing solar equipment for their use, and to individuals who install qualifying systems on homes they use as a residence, as well as owners of small wind systems with 100 kilowatts of capacity and less. The tax credits for both are 30 percent of the cost of the system.
Geothermal heat pumps
As part of EESA, an incentive — available Oct. 3, 2008, through Dec. 31, 2016 — was added to the energy-related tax rules for installing geothermal heat pump property or equipment.
The incentive covers 30 percent of the expenditures in the year the incentive is taken, up to a cap of $2,000. Qualified geothermal heat pump property refers to any equipment that uses the ground or ground water as a thermal energy source to heat the taxpayer’s residence, or as a thermal energy sink to cool the residence.
Fuel cells and micro-turbines
Tax credits are available to businesses that install qualifying micro-turbines. These systems, which typically run on natural gas, are sized to run small to medium-size commercial buildings.
The 30 percent investment tax credit for solar energy property and qualified fuel cell property and the 10 percent investment tax credit for micro-turbines have been extended through 2016.
Tax breaks for getting around
Buyers of heavy-duty hybrid vehicles can receive tax credits based on the weight class of the vehicle, its fuel economy relative to a comparable conventional vehicle, and the incremental cost.
There is also a tax credit for switching to electric vehicles of any size. A new credit against tax is available for tax years beginning after Dec. 31, 2008, for new, qualified plug-in electric drive motor vehicles. The amount of the credit is $2,500, plus $417 for each kilowatt-hour of traction battery capacity in excess of four kilowatt-hours.
Last fall’s tax law changes also created a new fringe benefit for employers going green: a bicycle commuting reimbursement. An employer can provide employees who commute to work using a bike up to $20 per month. Whatever form that reimbursement takes, it is tax-free for the bike commuter and tax deductible by the employer.
Reuse and recycling
You many now benefit from a unique write-off for so-called “reuse and recycling property,” placed in service after Aug. 1, 2008. A 50 percent additional depreciation allowance, based on the adjusted basis of new reuse and recycling property, is available.
That “property,” includes machinery and equipment (not including buildings, real estate, rolling stock, or equipment used to transport reuse and recyclable materials) that is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials. Machinery and equipment includes appurtenances such as software necessary to operate the equipment.
Other energy incentives
In addition to the tax incentives provided by our tax laws, there are a number of local, state, and utility company programs.
For example: The American Council for an Energy-Efficient Economy (http://acee.org/energy/state) offers the State Energy Efficiency Policy database.
Another example — the Database of State Incentives for Renewables & Efficiency (www.dsireusa.org) — is a project of the North Carolina Solar Center and the Interstate Renewable Energy Council (IREC) that provides a comprehensive gateway to detailed information of a variety of state energy policies.
Ever-increasing energy costs and an interest in “going green,” are making many businesses think about the environment when planning renovations or construction of new facilities.
With lawmakers pondering the big picture and future legislation centering on funding energy-efficiency, it is important to remember that our current tax laws already help you reduce the out-of-pocket, upfront expenditures essential to long-term energy savings.
Mark E. Battersby is a tax and financial advisor, freelance writer, lecturer, and author with offices in suburban Philadelphia. He can be reached at 610-789-2480.
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