Top 3 Tax Incentives for Building ‘Green’

Written by Darren Labrie, CPA. Updated May 17, 2019.

CostSeg_GreenBuildingThe 21st-century conservationists have firmly planted the phrase ‘going green’ into the American lexicon. It ubiquitously serves as a catch-all term for the act of swapping old processes, services, laws, materials, and products for those that carry some environmentally-friendly and energy-efficient element. Green building construction is just one of the many environment-saving efforts happening today.

But as with many green undertakings, building green isn’t cheap. In the beginning anyway. The upfront cost often hinders builders and business from going green with their construction. Fortunately, federal, state, and local governments offer tax credits to help fund green building initiatives.

Learn about claiming valuable R&D credits for construction projects

Take a look at these three leading tax incentives that can help your new building construction go from eco-mean to eco-green:

Top 3 Green Construction Incentives

  1. Section 45L Tax Credits
    Section 45L of the Internal Revenue Code (IRC) offers up to $2,000 per unit for single and multi-family dwellings of three stories or less. Therein, an approved 100-unit apartment building could yield a $200,000 tax liability savings.

    The qualifying prerequisite mandates that the structure must deliver heating and cooling consumptions levels lower than national energy standards. Because the credit can be claimed retroactively (from 2005) and many developers have been building to meet energy standards for the past few years, it’s worth a 45L credit assessment to check for potential claims.

    For over three decades, California has gone beyond the national code and has used its stricter California Energy Commission’s (CEC) code. This approach makes Section 45L particularly available to builders in that state.
  1. Section 179D Deductions
    Many persons involved with a building stand to save substantial tax liability dollars - possibly into the millions – with IRC Section 179D deductions: Building owners of commercial and apartment buildings (four or more stories) and tax exempt government builders, and the architects, engineers, and contractors.

    Unlike other deductions based solely on total spending amount, 179D deductions apply to the affected square footage and spending amount. It offers up to $1.80 per square foot to those who built or renovated commercial structures with green or energy-efficient improvements between January 1st, 2006 and December 31st, 2016. The dates also may vary based on who is seeking the credit, the building owner or designers. Ideal candidates typically work with edifices of 50,000 square feet or more.

    Qualifying facilities must reduce energy usage in any of the following categories:
    • Building envelope
    • HVAC
    • Interior lighting systems
  1. Section 48 Investment Tax Credit
    This investment tax credit (ITC) helps businesses lower the cost of procuring and operating renewable energy equipment with a 10% to 30% tax credit on costs.

    The credit is calculated by multiplying the ‘energy percentage’ by the ‘eligible basis’ of the qualifying property placed in service during the taxable year.

    Businesses looking to benefit from the Section 48 ITC often find that they can leverage a cost segregation study to increase the allocation towards property eligible for these credits while accelerating depreciation on other assets.  

Gathering All the Green

Building green can get costly in the beginning, but with a careful review of green-friendly tax incentives, you can offset the price tag with substantial savings. The best way to ensure you discover and capture all available credits for eco-friendly commercial facilities is to consult a tax specialist with green building tax incentives experience.

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Topics: Property Incentives

Darren Labrie, CPA

Written by Darren Labrie, CPA

Darren brings more than 20 years of experience in tax credits and business incentives. In his current role, he focuses on the overall operations of the practice and ensuring the highest level of service to clients.