Call for a free quote: 262-547-1111
Hours: 9AM to 5PM CST/CDT (Monday to Friday)
Building Incentives for 2016
(This article is for informational purposes only and is not to be construed as legal or tax advice. Consult a certified public accountant (CPA) and/or licensed attorney for such advice.)

​​There are a number of incentives that building owners can use to achieve energy savings by using a range of financial and government tax incentives and deductions in the remainder of 2016 and one that is coming on strong for 2017.

Financial incentives include grants and long term, low interest-rate energy efficiency financing tied to renewable energy investment. These incentives change every year, but here are five programs that you should be aware of for the remainder of 2016:

Section 179d:

Section 179d (aka the green building tax deduction) is set to expire on December 31st, 2016. 

​What is Section 179d?

Section 179d offers new or existing building owners a one-time depreciation deduction of up to $1.80 per square foot for their installation of energy efficiency measures such as high efficiency interior lighting; efficient building envelopes; or heating, cooling, ventilation (HVAC), or hot water systems.

Qualifying systems must reduce the building’s total energy and power cost by 50% or more in comparison to a building meeting minimum requirements set by ASHRAE Standard 90.1-2007, for buildings placed in service after December 31st, 2015. For buildings placed in service prior to January 1st, 2016, reductions in energy costs must be compared to ASHRAE 90.1-2001, which is a less stringent standard.

If a building cannot achieve savings of 50% efficiency or more, a partial deduction is available of up to $0.60 cents per square foot per system (lighting, building envelope, HVAC or hot water systems). Partial deductions must comply with the following requirements: Building envelopes must achieve at least 10% efficiency, HVAC and/or hot water must achieve at least 15% efficiency, and lighting must achieve at least 25% efficiency.Energy savings must be calculated and verified by a qualified professional engineer and by using qualified computer software approved by the IRS. 
The Department of Energy developed the "179d DOE Calculator", a free online tool that provides calculations to determine eligibility for the 179d federal tax deduction. In just a few clicks you can tell whether your building qualifies. Find the 179d DOE Calculator here.

Energy Investment Tax Credit (ITC) The Energy Investment Tax Credit, also called the Solar Investment Tax Credit, provides a 30% federal tax credit for residential (Section 25D) and commercial (Section 48) solar systems. 

The ITC was extended with the Omnibus Consolidated Appropriations Act (P.L. 114-113) until 2023.

The ITC provides dollar for dollar tax credits for eligible solar systems that begin construction on or before December 31, 2023.

According to the Department of Energy's Database of State Incentives for Renewables and Efficiency (DSIRE) website, the following green building systems are eligible for the ITC:
​Solar: The credit is equal to 30% of expenditures with no maximum credit. Eligible solar energy property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat.

Hybrid solar lighting systems, which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight are eligible. Passive solar systems and solar pool-heating systems are not eligible.

The Solar ITC declines gradually in the years approaching 2023.
12/31/16-12/31/2019 = 30%
1/1/2020-12/31/2020 = 26%
1/1/2021-12/31/2021 = 22%
1/1/2022- Future Years = 10%

More Applications of the Energy Investment Tax Credit (ITC) With Earlier Expirations

The Energy Tax Credit extension included several amendments for other clean energy sources, including fuel cells, small wind, geothermal heat pumps, microturbines, combined heat and power (CHP), and large wind systems.

Fuel Cells: Expires on 12/31/2016 - The credit is equal to 30% of expenditures with no maximum credit. However, the credit for fuel cells is capped at $1,500 per 0.5 kilowatt (kW) of capacity. Eligible property includes fuel cells with a minimum capacity of 0.5 kW that have an electricity-only generation efficiency of 30% or higher. (Note that the credit for property placed in service before October 4, 2008, is capped at $500 per 0.5 kW.)

Small Wind Turbines: Expires on 12/31/2016 - The credit is equal to 30% of expenditures with no maximum credit for small wind turbines placed in service after December 31, 2008. Eligible small wind property includes wind turbines up to 100 kW in capacity. (In general, the maximum credit is $4,000 for eligible property placed in service after October 3, 2008, and before January 1, 2009. The American Recovery and Reinvestment Act of 2009 removed the $4,000 maximum credit limit for small wind turbines.)

Geothermal Systems: Expires on 12/31/2016 - The credit is equal to 10% of expenditures with no maximum credit limit stated. Eligible geothermal energy property includes geothermal heat pumps and equipment used to produce, distribute or use energy derived from a geothermal deposit. For electricity produced by geothermal power, equipment qualifies only up to, but not including, the electric transmission stage. For geothermal heat pumps, this credit applies to eligible property placed in service after October 3, 2008. Note that the credit for geothermal property, with the exception of geothermal heat pumps, has no stated expiration date.

Microturbines: Expires on 12/31/2016 - The credit is equal to 10% of expenditures with no maximum credit limit stated. The credit for microturbines is capped at $200 per kW of capacity. Eligible property includes microturbines up to two megawatts (MW) in capacity that have an electricity-only generation efficiency of 26% or higher.

Combined Heat and Power (CHP) Systems: Expires on 12/31/2016 - The credit is equal to 10% of expenditures with no maximum limit stated. Eligible CHP property generally includes systems up to 50 MW in capacity that exceed 60% energy efficiency, subject to certain limitations and reductions for large systems. The efficiency requirement does not apply to CHP systems that use biomass for at least 90% of the system's energy source, but the credit may be reduced for less-efficient systems. This credit applies to eligible property placed in service after October 3, 2008.

MACRS - Modified Accelerated Cost Recovery System

Under the federal Modified Accelerated Cost-Recovery System (MACRS), the IRS allows businesses to recover green building investments in certain property through depreciation deductions.

MACRS is a favorite tool of many solar photovoltaic array buyers because it accelerates the rate of return on solar energy investments.
The following chart, from The Butler Firm, shows the benefits of MACRS for solar investments, compared to other assets which may have a depreciation period of over 20 years.

​The MACRS establishes a set of "class lives" for various types of property, such as solar and wind, ranging from three to 50 years, over which the property may be depreciated. However, many renewable energy technologies are classified as five-year property.

Under MACRS, eligible green building property investments include:
  • Solar Water Heat
  • Solar Space Heat
  • Solar Thermal Electric
  • Solar Thermal Process Heat
  • Photovoltaics
  • Landfill Gas
  • Wind/Small Wind
  • Biomass
  • Geothermal Electric
  • Fuel Cells
  • Geothermal Heat Pumps
  • Municipal Solid Waste
  • Combined Heat and Power (CHP/Cogeneration)
  • Solar Hybrid Lighting
  • Hydrokinetic Power (i.e., Flowing Water)
  • Anaerobic Digestion
  • Tidal Energy and/or Wave Energy
  • Ocean Thermal
  • Fuel Cells using Renewable Fuels
  • Microturbines
  • Geothermal Direct-Use
Qualifying solar energy equipment is eligible (described above in the ITC section) for a cost recovery period of five years. For equipment on which an Investment Tax Credit (ITC) or a 1603 Treasury Program grant is claimed, the owner must reduce the project’s depreciable basis by one-half the value of the ITC. This means the owner is able to deduct eighty-five percent (85%) of his or her tax basis.

Building owners may take advantage of both the MACRS system and the ITC, and receive both a depreciation deduction of 85% of their tax basis and a credit of 30% (not an apples to apples comparison). For more information on MACRS and solar panels, visit this page on SEIA.org.

Residential Energy Efficiency Tax Credits

Federal tax credits for residential energy efficiency have been renewed in 2016. These tax credits are also retroactive for 2015 and made available for residential homes (rental homes do not qualify, but second homes do).

Homeowners may receive a tax credit of 10% of cost, up to $500, or 30% of cost with no upper limit.

10% of Cost, Up to $500: Applies to energy efficiency improvements in the building envelope of existing homes and for the purchase of high-efficiency heating, cooling and water-heating equipment. Includes insulation, energy efficient exterior windows, doors, and certain roofs. Note that the cost of labor associated with the install does not qualify, with the exception of: HVAC, water heaters and biomass fuel systems.

Efficiency improvements or equipment must serve a dwelling in the United States that is owned and used by the taxpayer as a primary residence. The maximum tax credit for all improvements made in 2011 - 2014 is $500. The cap includes tax credits for any improvements made in any previous year. If a taxpayer claimed $500 or more of these tax credits in any previous year, any purchases made in 2011 - 2014 will be ineligible for a tax credit. Expires December 31, 2016.

ENERGY STAR appliances and products qualify for the tax credits as well. You can find a list of hundreds of ENERGY STAR labeled products on the ENERGY STAR certified products website. 

30% of Cost, with No Upper Limit: Applies to geothermal heat pumps, small wind turbines, and solar energy systems for both existing homes and new construction. Principle residences and second homes qualify, but rentals do not. The cost of labor to install the systems does qualify. This credit is almost analogous to the Energy ITC described above, except it's for residential property owners. The credit is set to expire on December 31st, 2016.

Commercial PACE Financing: A Better Approach to Building Improvements

PACE (Property Assessed Clean Energy) offers incredible incentives for owner occupied buildings and for creative investors, regardless of their investment time horizon. Before PACE, the "old" way of making capital improvements to a property often required enduring negative cash flow. Building owners either committed to investing their own cash out of pocket, or took on incremental debt in the form of short term bank financing. In either case, the return on investment (ROI) associated with the capital improvements were forecasted to occur well into the future, if ever.

Instead of coming out of pocket to fund necessary capital improvements to experience negative cash flow, owners see positive cash flow and no out of pocket costs. 

PACE financing is currently approved by 26 states and is rolling out in Wisconsin this year.  PACE has been approved by the City of Milwaukee for the past two years. University Club and several others have benefited from PACE financing for their energy saving technology improvements to their buildings. The main benefit to the Owner is that they can implement energy saving technology within the building envelope and experience all of the energy saving benefits, yet the cost can be spread out up to 20 years as a special tax assessment. In addition, if the building is sold, the cost stays with the building.

PACE programs are public private partnerships. Banks underwrite energy efficiency investments, which they fund, and in return municipalities collect the payments with property tax collections. This provides stability and low risk with the flexibility and access to capital of private investment programs. The commercial PACE program is approved at state level in Wisconsin and is currently in the process of being approved at the county level. As of 10/31/16, there are nine counties that have adopted PACE.

PACE financing can be used in combination with the aforementioned MACRS depreciation, 179d tax credit, and the Business ITC. 

Learn more about PACE financing and how Logical Green Solutions can assist you here!