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Inspector Viewing Notes Property

The tax and spending bill includes a provision that gives builders greater opportunity to redeem tax incentives for green building and renovation practices.

Minimizing business tax

Energy Credits in Tax Bill Benefit Residential and Commercial Builders

  • 12/28/2015

Investors, developers, designers, contractors, and others involved in building or renovating residential or commercial buildings may benefit from new “tax extender” legislation. The law, Consolidated Appropriations Act, 2016, prolongs the existing sustainability incentives in real estate development, and diminishes some of the uncertainty that has surrounded these rules in past years.

Section 45L: home credit

This amendment provides investors and developers of residential buildings with credits of up to $2,000 per qualifying unit. The credit applies to apartments, condominiums, mixed-use developments, production homes, and senior, student, and affordable housing. The buildings must be three stories or less above grade, and should be constructed and leased over the last three years.

The credit originally expired on December 31, 2014, but under the amended Section 45L of the new law, the provisions extend the credit until December 31, 2016, applicable to homes acquired after December 31, 2014.

Section 179D: commercial building deduction

The Section 179D building deduction allows the owner of a commercial building to receive a tax deduction for a building that is constructed or renovated in an energy-efficient manner. Although government entities do not pay federal taxes, they can assign tax benefits to tax-paying commercial businesses involved in designing these buildings, such as architects, engineers, contractors, and energy service providers. As with the Section 45L credit, the Section 179D deduction expired on December 31, 2014.

The amended Section 179D provisions extend the deduction until December 31, 2016, applicable to property placed in service after December 31, 2014. For properties placed into service after December 31, 2015, the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) baseline standard used to determine qualification, will be updated from the current ASHRAE 90.1 2001 standard to ASHRAE 90.1 2007.

How we can help

While these incentives are extended, they are set to expire down the road just as they have always been in the past, so we urge you to take advantage of them while they are available. Naturally, you have to complete some paperwork to qualify. Our experienced tax professionals can help you determine the potential tax benefits for your project.