Sustainable Land Development Today - July/August 2008 - (Page 12) TAX STRATEGIES Federal Tax IN¢ENTIVES By Chris Heuer, Kevin Pearson, and Adam Kobos for Green Buildings U ntil recently, cost has been one of the biggest obstacles to “green building,” which is the application of sustainable development principles to the construction of buildings. Although the costs of developing green buildings are beginning to approach those of traditional buildings, new tax credit and financial incentive programs also are helping to make green-building projects more attractive. Federal, state, and local governments are discovering that high-performance buildings, including both new construction and retrofits of existing buildings, are good for the environment and generate economic benefits by reducing building operations and maintenance costs. Reflecting this new understanding, a variety of state and federal legislation has been passed that provides a mixture of tax incentives, rebates and other financial assistance to encourage additional growth in the rapidly developing green building industry. This article provides a general overview of three significant federal tax incentives for green building: the energy efficient commercial building deduction, the energy efficient home tax credit for builders, and the investment-based energy income tax credit. Although these tax incentives are set to expire December 31, 2008 and it is not certain that the sunset dates will be extended, a variety of proposed legislation that would extend these incentives is pending. Even where it is not possible to meet the December 31, 2008 deadlines applicable under current law, it is important to plan for the likelihood that some or all of these federal tax incentives may be renewed. The energy efficient commercial building deduction Section 179D of the Internal Revenue Code of 1986, as amended (the “Code”), allows a commercial building owner to deduct part or all of the cost of certain “energy efficient commercial building property” placed in service after December 31, 2005 and before January 1, 2009. The amount of the deduction generally is equal to the cost of qualifying property placed in service during the taxable year, subject to a lifetime cap per building of $1.80 per square foot. The tax basis of the property for purposes of calculating depreciation deductions and gain or loss on a disposition is reduced by the amount of the Section 179D deduction. “Energy efficient commercial building property” generally means property that meets all of the following requirements: I The property must be depreciable or amortizable (i.e., buildings and equipment, but not land); I The property must be installed on or in a building located in the United States that is within the scope of Standard 90.1–2001 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating 12 July/August 2008 Sustainable Land Development Today
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