Energy Efficient Commercial Buildings Tax Deduction

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Green Building Certification

Your clients may be eligible for a tax deduction for investments in energy efficient buildings

The benefits of building green are not just environmental. For business owners and developers, the 2005 Energy Policy Act created Section 179D which allows a significant federal tax deduction for the costs of installing certain energy efficient systems in commercial buildings. The tax deduction offers up to $1.80 per square foot for improving the energy efficiency of existing commercial buildings or designing high efficiency into new buildings. This specifically applies to commercial properties designed to significantly reduce heating, cooling, water heating, and interior lighting energy costs. The deduction also can apply to architects or engineers who design buildings. A SourceCorp Energy Efficiency Study can determine the total applicable tax deduction a building owner can qualify for.

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Work With CPAs Providing Maximum Benefit
Experienced. Reliable. Trusted.

Why SourceCorp Green Building Professionals:

Professional Engineer (PE) on staff who performs Green Building certification
In the process of becoming LEED certified (Fall 2008)
We are experienced, reliable, and financial stable – 25-years in business
Sarbanes-Oxley Act of 2002, Gramm-Leach-Bliley Act of 1999 (GLBA), and the Health Insurance Portability and Accountability Act of 1996 (HIPPA) compliant
Maintain a minimum of $2M errors and omissions liability insurance with a best-rated insurance firm
Provide both certification of energy savings and Cost Segregation study to maximize your client's tax deduction, maintain information continuity, and reduce overall expenses
Provide a complimentary review to see upfront whether or not to pursue the certification and study
Provide complimentary audit assurance and support
Provide a guarantee of work performed and accuracy of final report

Building Green Saves Green-
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An Overview

The U.S. holds less than 5% of the world’s population but produces nearly 25% of global carbon emissions.1
National Climatic Data Center Reports 2006:
2.2 degrees warmer than average
.07 degrees warmer than 1998
6th warmest year on record

It’s the Buildings…

U.S. building sector building design, construction, materials and operation consume more energy than any other part of the economy:
9.8% of carbons worldwide2
Same as entire economies of Japan, France, and the United Kingdom2
300 billion square feet of buildings in the US are the single largest contributor to global warming in the country2
48% of all energy consumption and greenhouse gas emissions (GHG) in the US annually is from buildings2
76% of all power plant generated electricity is used to operate buildings globally2

Who Uses the Power?

76% of electrical power consumed by buildings2
23% of electrical power consumed by industry2
1% of electrical power consumed by transportation2

Buildings in the U.S. Use:

70% electricity consumption3
65% waste output3
30% greenhouse gas emissions3
12% water use3

Average Savings of Green Buildings:

50-90% decrease in waste cost savings4
30-50% decrease in water use savings4
35% decrease in carbon savings4
30% decrease in energy savings4
Tax deduction of up to $1.80/sf for improving the energy efficiency of your existing commercial buildings or designing high efficiency into new buildings5

Economic Value & Cost:

78% of property managers believe sustainable buildings can command 10% higher rents6
Massachusetts study – 1.5 to 2.5% cost premium returned 10 to 20 times the benefit6
87% of business would prefer an efficient building to an iconic one7

Improved Bottom Line:

30-70% energy savings3
8-9% average verified performance operating cost reductions3
2-16% enhanced productivity in office spaces3
7.5% average increased value3
Reduced liability and improved risk management3

Sources: 1 Scientific American September 2006; 2 American Institute of Architects; 3 U.S. Green Building Council; 4 Capital E; 5 Energy Policy Act of 2005 section 179D Internal Revenue Code; 6 Captial E Greening America’s Schools October 2006; 7 Gensler 2006; 8 City of Dallas Green Initiative; 9 Survey report by the U.S. Conference of Mayors

What is the 179D Tax Deduction?

The Energy Policy Act of 2005 added section 179D to the Internal Revenue Code. Section 179D permits a deduction for the costs of installing certain energy efficient building systems in commercial buildings.

To claim the deduction, a taxpayer must have a qualified firm perform a field inspection of the building. They then must use qualified software from the Treasury

Department’s list of certified software to calculate the energy savings. Finally, a qualified individual must certify the results. SourceCorp has qualified and certified Green Building study experts.

Green Building 179D Energy Efficiency Tax Deductions: You may be eligible for a tax deduction of up to $1.80 per square foot for improving the energy efficiency of your existing commercial buildings or designing high efficiency into new buildings. The Energy Policy Act of 2005 includes a tax deduction for investments in “energy efficient commercial building property” designed to significantly reduce the heating, cooling, water heating, and interior lighting energy cost of new or existing commercial buildings.

Because the Code section 179D deduction applies to new buildings that meet certain energy savings targets and requires the involvement of licensed engineers or contractors, you may not have known where to turn to for help with this new deduction. You can turn to the professional staff at SourceCorp Professional Services for help in determining whether your clients qualify for this new deduction.

The SourceCorp Green Building 179D Energy Efficiency Service team is comprised of full-time, highly experienced and uniquely qualified 179D professionals. We can help maximize your deductions and limit your exposure.

Audit Support
Under our standard agreement, we provide 40 hours of audit support. We anticipate that the section 179D study will involve a minimal level of audit support because we can provide the agent with the study and discuss any questions the agent might have. As necessary, we would file a Form 8821 to be able to discuss the study with the agent. If the combined section 179D study and cost segregation report require additional audit support, we can file a Form 2848 and work with you on providing the best audit defense for your client.

SourceCorp Green Building Study Process/Overview:
After preliminarily reviewing the specifications, we determine whether the building would qualify in whole or in part. After obtaining any necessary licenses in the building’s local jurisdiction, a professional engineer would perform the energy modeling and analysis and schedule a site visit. The energy modeling may not occur until after the site visit depending on the level of detail available in the plans. Detail is frequently lacking in situations where the taxpayer acted as its own general contractor. Regardless, during the site visit, our engineer would follow the NREL standard guides and checklists to verify that the property meets the energy savings targets and gather any additional information not included in the plans.

We then finalize the section 179D study and provide the building owner with an overview of the energy saving features.

After we provide the certification of the qualifying energy efficient property, our specialized cost segregation team become involved in the process. The certification process for Code section 179D only determines whether the deduction is available. The certification process does not involve determining the cost of the qualifying energy efficient property. Our cost segregation team will:

Use industry-standard cost estimation techniques to determine the cost of the qualifying energy efficient property;
Integrate the section 179D study findings into the cost segregation report.

Our cost segregation team determines the cost basis of the qualifying property and determines the applicable cap on the deduction.

Where possible, the engineer that performs the site visit will also be able to perform the cost segregation analysis of the building. In some situations, the engineer may work in tandem with another cost segregation consultant on larger or unusual properties. Alternatively, your client’s in-house contractor or professional engineer may be able to perform the site visit and then we could send only a cost segregation consultant for a site visit. After finalizing the cost segregation report, we will ship a hardcopy of our comprehensive cost segregation report and the section 179D study to your client.

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