Cost segregation is a key project for identifying your opportunities to capture green building tax incentives. A cost segregation study breaks down costs and documents the information you need to claim green building benefits.
Typically, green building tax incentives are complementary projects to cost segregation, where the analysis is primarily focused on accelerated depreciation for fixed asset tax deductions.
When doing a green building tax benefit project, however, the energy incentives are at the forefront. Even still, it’s highly recommended to conduct a cost segregation study. The study is the best way to get detailed information on the costs and construction/engineering specifics of your building. Additionally, the study also naturally lends you the tax benefit of accelerated depreciation.
Green Building Tax Incentives: Pursue These Programs
Developers and property owners who practice green building techniques actually create demand and encourage innovation within the world of green building technologies. That’s why the U.S. government is more than willing to offer tax benefits that motivate all energy efficiency efforts in a collective mission to lower energy costs and preserve the planet. The great news is that as a property owner or developer, among others, you’re likely already building or renovating based on green building standards.
The following green building tax incentives are the most commonly captured by developers and property owners:
- Section 45L Tax Credits
The 45L tax credit – available to apartment, condominium, and single-family resident developers – can be up to $2,000 per unit. So, if you have 100 units in an apartment building that qualify, you receive a $200,000 reduction of your tax liability. To qualify, units in your building must provide a level of heating and cooling energy consumption that is lower than national energy standards. This tax credit may also be claimed retroactively. - 179D Deductions
179D is a section of the tax code that provides a benefit for businesses, architects, engineers, and contractors when they build or renovate a building that is energy efficient. The 179D deduction is capable of generating a substantial reduction in tax liability, even millions of dollars in deductions, depending on how much property you own and what green building projects qualify. - Other Important Green Building Tax Incentives
Although a lot of green building incentives talk centers on the 45L and 179D, plenty of other programs exist, especially on the state and local level. If you invest in green building equipment, like energy-efficient HVAC units or LEED lighting retrofits, tax benefits are available to help with the cost of these projects.
Technically, you don’t have to do a cost segregation study to capture green building incentives, but it’s recommended because it helps with documentation as well as compliance with repair regulations. The MARCS process used in a cost segregation study establishes a set of class lives for green building property investments that include solar, wind, water and geothermal renewable energy technologies.
While there are cost segregation specialists, they focus solely on performing the analysis of your fixed assets and handing you the results. They don’t know about green building incentives or what documentation is needed to claim the benefits. So, when looking to find a third party to conduct your cost segregation study, you want an expert that also understands tax incentives on a federal, state and local level.
The right outsourced tax consultant has a well-rounded team of experienced CPAs, engineers, and tax law aficionados working together to identify every incentive you’re entitled to for maximum tax savings.
Ready to capture green building incentives with the help of a cost segregation study? Download your complimentary, educational guide to learn more about cost segregation at your workplace.
