New tax deduction creates opportunities for green building upgrades
March 18, 2015
Corporate offices, colleges and industrial buildings can take advantage of tax breaks and other forms of financial incentives through the federal government by adopting greener building retrofits. The Office Energy Efficiency and Renewable Energy, for example, offers assistance for businesses and universities looking to invest in renewable and sustainable technology. This is just one resource at the disposal of organizations willing to streamline a number of operations in their facility. In fact, recent updates to the tax code have created a window for businesses and schools to replace aging infrastructure in their building while earning a healthy tax deduction in return.
While the tax break serves as appealing incentive for organizations to become more sustainable, the process of qualifying for the deduction is a bit more complicated than choosing a green replacement for an old system. Learning the ins and outs of this latest tax opportunity will put your company in the best position to take advantage.
Deduction targets abandoned long-life systems
Updates to IRS regulations IRS Revenue Section 263(a) and Tangible Property Regulations-080713 v1 are responsible for the tax incentive, which makes it easier for commercial building owners to pay for their upcoming or recent sustainability upgrade. The language of the IRS regulations note that only replacements of long-life systems, like HVAC systems, roofing or plumbing, will earn building owners their deduction.
Updates to these systems already deliver a great return on investment for businesses - combining these savings with the new IRS deduction could greatly offset the cost of making a building more sustainable and cost-effective. A greener building profile also does wonders for increasing a company's reputation as a sustainable leader.
Efficient and sustainable improvements earn a tax break
The IRS allows buildings owners to "abandon" or deduct the depreciation attached to building systems that were installed by a previous tenant and are in need of replacement with more sustainable technology. The extra funds help improve ROI and create the extra budget space necessary to invest in even more energy efficient upgrades.
Simply replacing old long-life components is not enough to qualify the upgrade for a tax break. The systems chosen to replace the building's aging technology must also deliver additional sustainability benefits to the building, qualifying the replacement as an abandonment - for example, replacing and supplementing rooftop air chillers with thermal energy storage applications.
Even systems whose value is not accounted for in previous building records can still qualify for an abandonment deduction - the value of these components can be calculated from the tax basis of the entire facility. The process of determining which components can be deducted, and how to determine the value for each deduction, however, is quite complex.
Determining which components qualify may take extra help
A recent feature from the Capital Review Group pointed out that trying to decipher the intricacies of how the IRS values an abandonment project is a task best left up to the professionals. Get in touch with tax advisors that have experience identifying components that qualify for abandonment - these experts can provide insights into how the value of these appliances will be calculated as a tax credit.
Hiring a tax expert to make sure your company takes full advantage of available green building incentives is another investment that can be covered by the deductions you'll earn through abandonment. However, don't be in a rush to retrofit every system in your building at once. Strategically planning these upgrades is a better way to ensure that your facility's daily operations aren't interrupted by multiple building improvement projects.
