Tax Aspects of New Energy-Efficient Apartment Technology
As of July 1, 2011, the nation’s 366 metro areas contained 261.1 million people; over 80% of this country’s population1. With metro areas come apartment buildings; in New York City alone there are almost 6 million renters. New energy efficient technologies are for the first time enabling apartment helping building owners to substantially reduce energy costs while generating large tax incentives. Large square footage apartment buildings are excellent candidates for capturing energy and tax savings.
The EPAct Section 179D Tax Opportunities
Pursuant to Energy Policy Act (EPAct) Section 179D, commercial property owners making qualifying energy-reducing investments in their new or existing locations can obtain immediate tax deductions of up to $1.80 per square foot. If the building project doesn't qualify for the maximum EPAct Section 179D $1.80 per square foot immediate tax deduction, there are tax deductions of up to $0.60 per square foot for each of the three major building subsystems: lighting, HVAC (heating, ventilating, and air conditioning), and the building envelope. The building envelope is every item on the building’s exterior perimeter that touches the outside world including roof, walls, insulation, doors, windows and foundation. Residential buildings four stories and above are eligible for 179D tax incentives.
With traditional apartment incandescent lighting slowly being phased out and federally banned, building owners with this out-dated lighting must look to an alternative. LED lighting has dropped dramatically in price as of late and offers immense energy savings and bulb-life. As cost drops so does the payback period, and certain LED lighting projects have a payback of only 2 years2. Excellent candidates for LEDs are corridor and lobby fixtures as both are on 24/7. Apartment buildings obtain special privileges under the EPAct tax provisions in that living space dormitories are not subject to the bi-level switching tax requirements. LED lighting projects could dramatically lower lighting energy costs and could see up to $.60 per square foot in EPAct tax incentives.3
HVAC is the largest apartment building energy user and presents the best opportunity for energy cost savings. New technologies in HVAC such as Variable Air-Flow units are enabling apartment owners to capture large energy and tax savings4 . HVAC control projects can further reduce HVAC energy waste and typically have a payback of 2 to 4 years5. Apartment buildings with centralized HVAC obtain favorable tax treatment and often qualify for $1.20 and $1.80 per square foot tax deductions.
Utility companies use a time of day pricing model. Energy is more expensive during peak hours and cheaper during off-peak hours. Apartment complexes can now take advantage of these prices differences with technologies such as demand shifters and thermal storage. The Demand Shifter from Demand Energy allows for buildings to purchase power at night, during the off-peak, and store it in batteries until it is used during the day6. Thermal Storage is HVAC equipment that produces ice at night using the cheaper, off-peak rate, and then uses the ice during the day to cool the building. Thermal storage projects often qualify for $1.80 per square foot EPAct tax deductions, particularly in New York and Florida.7
Many apartment buildings have on-site parking garages. In parking garages the largest energy user is lighting, which is on 24/7. By retrofitting their parking garages with new LED technologies or other energy efficient lighting, apartment building owners can now reduce energy costs while capturing large EPAct tax incentives.8
Mandatory Building Energy Benchmarking
Many cities such as New York, and Washington D.C. have mandatory benchmarking laws. This requires building owners to perform a building energy benchmark once a year. Energy benchmarking can show building owners where they need to improve and can obtain tax incentives for doing so.9
New technologies make now the time for apartment building owners to retrofit their properties with energy efficient lighting and HVAC. By lowering fixed costs, building owners will be able to reduce tenant cost making their building more attractive and competitive.
3 - Charles R. Goulding, Raymond Kumar, Jennifer Pariante , LED Lighting Can Play A Key Role In Securing EPAct Tax Benefits, IMARK NOW, Feb 2012, at 62
4 - Charles R. Goulding, Andrea Albanese, Jacob Goldman, New HVAC Hotel & Apartment Technology Obtains Large EPAct Tax Incentives, TO BE PUBLISHED BY CORP. BUS. TAX’N MONTHLY
5 - Charles R. Goulding, Jacob Goldman, Charles G. Goulding, Upgrading to Energy Efficient Building Controls
7 - Charles R. Goulding, Jacob Goldman, Taylor Goulding, The Tax Aspects of Thermal Storage and Time-of-Day Pricing, CORP. BUS. TAX’N MONTHLY, Nov. 2009, at 13
8 - Charles R. Goulding, Jacob Goldman, D. Malcolm Thomas , Multiple Lighting Technologies Drive Large EPAct Tax Deductions for Parking Garages, INTL PARKING INSTITUTE, Aug 2010, at 22
9 - Charles R. Goulding, Jacob Goldman, Joseph Most - EPAct and Benchmarking, CORP. BUS. TAX’N MONTHLY, Oct 2012, at 11