Blog : For Building Owners Who Made Energy Efficient Upgrades, 2014 Was a Good Year

By Craig | Feb 3, 2015 | in

If you're a business or apartment complex owner who made substantial energy efficiency upgrades to your property last year, you will be glad to learn 2014 was a good year for reducing your taxes. On December 16, 2014, Congress passed the Tax Increase Prevention Act of 2014, which reinstated the Energy Policy Act of 2006. The reinstated act enables tax incentives for businesses and building owners for 2014. President Obama signed the bill when it was presented to him.

What does that mean for business owners? According to Jeff Hiatt of Performance Business Solutions, this could be a substantial benefit to your business.

The Tax Increase Prevention Act of 2014 (TIPA) reenacted a 50 percent bonus depreciation for energy efficient commercial buildings, and energy deductions. This allows building owners to take up to $1.80 per square foot for efficiency upgrades they made during 2014. Apartment building owners could get up to a $2,000 per unit Federal Tax Credit.

Why was the Energy Policy Act ever "off the table?" It's a puzzling question that started at its outset in 2006. At that time, the law stated that if a building owner made efficiency upgrades to buildings, he or she could take either a deduction or tax credit for having made that improvement to the building. That policy was in place until December 31, 2013 when it was supposed to "sunset," or disappear. However, this past December, Congress decided to act as if the sunset never occurred and reenacted the policy.

"The good news is, the policy is back in play for 2014," said Hiatt. "The bad news is, people who could have potentially moved on a project, might not have implemented that project because they thought the tax incentive was gone."

For the building owners who didn't move on the efficiency upgrades in 2014, the re-enacting of the policy is irrelevant. But for those who took the gamble and made energy efficient upgrades to their buildings, they will benefit this tax season.

The tax credits and deductions work like this: building owners receive $0.60 per square foot for lighting, HVAC and for upgrades to a building’s shell, or envelope, as exteriors are sometimes called. If a building owner of commercial properties or businesses increased the insulation in their building, put in LED lighting throughout, and installed a new HVAC system, they stand to receive $1.80 per square foot as a tax deduction against the income from that property. For owners of apartment buildings who made efficiency upgrades, they will receive $2,000 per unit as a tax credit.

"What this means is, if you own an apartment building, you're going to get a tax credit versus a tax deduction. A tax credit is like a gift certificate toward taxes whereas a tax deduction reduces your taxable income," said Hiatt.

Yet building owners aren't the only people benefitting from the reinstated policy. Architects, engineers, and construction workers can also receive tax deductions. Governmental agencies like libraries, government buildings, and universities that make the upgrades, cannot take advantage of the deductions. The projects’ architects, engineers and building contractors are authorized to claim the deductions for the upgrades to the government buildings.

"Many architects don't realize this is back in play," said Hiatt.

What does all this mean going forward in 2015? People will have to take the gamble that Congress will keep the policy alive for another year. Making energy efficient upgrades isn't just a good decision financially, it's also beneficial environmentally. “Regardless of the tax deduction or tax credit status, energy efficiency upgrades can help a commercial enterprise be more competitive. It may make sense to implement the upgrades and do them for the expense reduction,” said Hiatt. "Don’t let the tail wag the dog."

Do you have questions about how this policy affects your taxes? Call Jeff Hiatt at 508.878.4846 or visit Performance Business Solutions online here.

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