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Cutting energy costs can cut taxes

June 1st, 2009 / By: / Sustainability

Federal tax incentive programs can significantly reduce day-to-day operating costs.

Reducing the cost of energy and going green is on every businessperson’s mind these days. Although there can be additional initial costs associated with saving energy, provisions in our tax laws—benefits that increased significantly with last fall’s incentives package—offset some of those higher up-front costs.

While lawmakers push for and (in some cases) pass more energy-related tax breaks, our federal tax laws already contain a variety of tax savings for every specialty fabrics business working to achieve energy savings and increase sustainability. In fact, tax incentive programs offered by the federal government, as well as those offered by local and state governments and programs offered by utility companies, not only reduce the cost of acquiring and installing energy-efficient products, but significantly reduce the day-to-day costs of operating a shop or business.

Tax credits, tax deductions

Last year, as part of the Emergency Economic Stabilization Act of 2008 (EESA), the solar industry landed an eight-year extension for an existing 30 percent tax credit for residential and commercial solar installations. Tax credits—direct reductions of an operation’s tax bills as opposed to a “deduction” that merely reduces the annual tax bill—are not the only tax-related benefits for achieving energy efficiency, of course. However, the so-called “green buildings” tax credit is an important incentive offered to businesses under our federal tax laws.

Today, tax breaks are available for commercial buildings, creating significant incentives for making those properties more energy efficient. Businesses can get tax deductions for new or renovated buildings that save 50 percent or more of projected annual energy costs for heating, cooling and lighting compared to model national standards. Partial deductions are also available for efficiency improvements to individual lighting, HVAC and water heating, or envelope systems.

U.S. tax rules usually define “commercial property” as that intended for use by retail, wholesale, office, hotel or service users or for manufacturing or other industrial purposes. Qualified energy-efficient building property includes electric heat pump water heaters, qualified electric heat pumps, qualified central air conditioners, and qualified stoves, which use biomass fuels.

Rather than a deduction for the cost of equipment or systems that make a commercial building more energy efficient, a tax deduction of up to $1.80 per square foot is available for owners or tenants of both new and existing commercial buildings. Remember, however, that the improvement must save at least 50 percent of the heating, cooling, ventilation, water heating and interior lighting energy costs.

An increasing number of businesses employ solar heating or lighting, or install on-site wind systems. Not too surprisingly, many of those businesses are eligible for tax credits.

Progressive policy

In order to qualify for these tax credits, equipment will either use solar energy to generate electricity, to heat/cool or provide hot water to a structure, or will use solar energy to illuminate the inside of a building by means of fiber-optic distributed sunlight (tube systems and passive solar are not eligible). The credits are available for systems placed in service between January 1, 2006 and December 31, 2016.

Owners of small wind systems with 100 kilowatts (kw) and less capacity can receive a new tax credit for 30 percent of the total installed cost of the system, not to exceed $4,000. Similar tax breaks are available for geothermal heat pumps, fuel cells and micro turbines

In addition to the tax incentives provided by our tax laws, there are a number of local, state, and utility company programs. States often lead the way in adopting progressive policies to promote energy efficiency.

The American Council for an Energy-Efficient Economy, for example, offers the State Energy Efficiency Policy database, searchable by either state or policy area.

Another database, established in 1995 and funded by the U.S. Department of Energy, is the Database of State Incentives for Renewables & Efficiency. The website, from the North Carolina Solar Center and the Interstate Renewable Energy Council (IREC), provides a comprehensive gateway to detailed information on a variety of state energy policies.

Ever-increasing energy costs and an increasingly pervasive interest in sustainability are making many specialty fabrics business owners and managers give new priority to environmental issues when planning renovations or construction of new facilities. With lawmakers pondering the big picture and future legislation centering on funding energy efficiency, it’s important to remember that our current tax laws already help many businesses reduce the out-of-pocket, up-front expenditures that are essential to long-term energy savings.

Mark E. Battersby, Ardmore, Pa., writes regularly about tax-related and financial topics. Contact him at MEBatt12@earthlink.net.

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