Jerome Garciano
by Jerome L. Garciano
Tax incentives available to facilities and real estate portfolios can play an important role in achieving the twin goals of an increase in clean energy production and a decrease in energy used, which will move our country toward a more sustainable energy platform. Federal tax incentives in the Internal Revenue Code are designed to promote cleaner energy production and more efficient energy use. While many of these tax benefits have expired and been renewed numerous times, these federal tax benefits provide an important source of financial incentive to the private real estate and building sectors to motivate market shifts towards sustainability and climate change resilience.
Renewable Energy and the Investment Tax Credit
The following energy sources or technologies are considered renewable energy: wind, solar electric, solar thermal, geothermal, hydroelectric, methane, biomass, alternative fuel, biodiesel, biofuel, ethanol, fuel cell, cogeneration, irrigation, and marine. The most popular renewable energy sources and technologies are wind, solar (including both photovoltaic and thermal energy), geothermal, and biomass. A key federal tax incentive for renewable energy is the Investment Tax Credit.
The Investment Tax Credit is a federal business income tax credit generally in the amount of 30% the cost basis of qualifying energy property. The Investment Tax Credit is available to the taxpayer owner who placed the qualifying energy property in service. Qualifying energy property is renewable energy installations based on fuel cell, solar energy, small wind energy, geothermal, microturbine, and combined heat and power technology systems. The Investment Tax Credit amount is reduced to 10% for qualifying geothermal, microturbine, and combined heat and power system property. The 30% Investment Tax Credit for solar projects currently expires December 31, 2016.
Energy Efficiency and the Energy Efficient Commercial Building Property Tax Deduction
A significant reduction in the use of electricity, fuel, and other energy sources would help move the U.S. toward a sustainable energy position. Many federal and state tax benefit programs use the Energy Star program as a standard in energy-efficient appliances and building components. Efficiency programs geared toward whole building performance are also popular. Green building standards such as LEED have been incorporated into a growing number of tax incentive statutes throughout the country. A key federal tax incentive for energy efficiency is the Energy Efficient Commercial Building Property (EECB) Tax Deduction.
The EECB Tax Deduction is a federal income tax deduction in the amount of 100% of the cost of energy-efficient commercial building property, limited to a maximum of $1.80psf of the building. Energy-efficient commercial building property is depreciable property installed on or in a building which is installed as part of the interior lighting systems, the heating, cooling, ventilation, and hot water systems, or the building envelope, and is certified as being installed as part of a plan designed to reduce the total annual energy and power costs of the building in comparison to a reference building that meets the minimum requirements of ASHRAE Standard 90.1–2001. Qualifying lighting systems reduce lighting power density, have controls and circuiting that comply with Standard 90.1-2001, include bilevel switching, and meet the minimum requirements for calculated lighting levels as set forth in the IESNA Lighting Handbook, Performance and Application. The EECB Tax Deduction expired December 31, 2014 and so will only apply to property placed in service in the past few years unless the program is again retroactively extended.
Conclusion
The hundreds of federal and state tax incentives for renewable energy and energy conservation are diverse in their form, as well as in their efficacy. Tax incentives may play a role in helping to move facilities in the direction of cleaner and more efficiently used energy.
See http://www.rc.com/upload/RC-Garciano-Green-Tax-Incentive-Compendium-July-2015-US.pdf for a copy of the author’s 50-state survey and summary of these tax incentives.
Jerome L. Garciano is an attorney at Robinson & Cole in Boston.
