Ask the builder: Businesses can reduce taxes while saving on energy consumption

Question: Mike, You provide excellent information on residential housing, but my question is concerning local businesses. What kinds of tax incentives or credits are available to local businesses for energy star upgrades?

Good question and a nice segue from our article in the February 2008 edition. And thanks to the Rehmann Group in Traverse City for assisting me in delivering the following business wisdom.

ENERGY TAX INCENTIVES

The 2006 Tax Relief and Health Care Act provides some incentives for individuals and businesses to make certain energy conservation or alternative energy expenditures. While these credits and deductions may not net you a significant tax break, you should consider them if you – or your business – are planning energy-efficient improvements or purchases, and want to save money while doing your part for the environment.

Businesses

Credits for energy-generating or storage property: Businesses are eligible for several credits ranging from 10 percent to 30 percent for purchase of qualifying solar energy property and for fuel cell and micro turbine power plants placed in service in 2006 through 2008.

Credits for energy-efficient new homes: Contractors are eligible for a credit of $2,000 per home for new construction that meets a 50 percent energy efficiency standard, is located in the U.S. and is sold by Dec. 31, 2008. A credit that varies depending on the level of energy savings achieved is also available for manufactured homes.

Energy-efficient commercial building deduction: A deduction, based on a square-footage calculation, is available for the cost of major energy-saving improvements to commercial buildings placed in service by Dec. 31, 2008. The deduction allows for partial or complete immediate expensing of improvements that would otherwise be capitalized and depreciated over a much longer time frame. Qualifying improvements include depreciable property installed as part of a building's interior lighting systems; heating, cooling ventilation and hot water systems; or building envelope costs. To expense 100 percent of these costs, the improvements must be incurred as part of a certified plan to reduce total annual energy and power costs of these systems by at least 50 percent in comparison to a reference building meeting specified minimum standards. The partial deduction is available for property costs meeting IRS-specified energy savings targets.

Individuals & businesses

Alternative-fuel or clean-fuel vehicles: Credits of various amounts are available to both individuals and businesses for purchasing alternative fuel, hybrid, fuel-cell-powered and advanced lean-burn technology vehicles. In some instances, by replacing deductions allowed under prior law, these credits provide greater incentives for qualifying purchases. The credits, which go into effect on various dates, may also apply to leased vehicles. Purchase or lease must be after 2005, but can be as late as 2009 or 2014, depending on the type of vehicle.

Energy-efficient appliances: Manufacturers will get a credit for producing energy-efficient appliances such as dishwashers, washing machines and refrigerators. Though consumers were left out of this tax break, they may see a price break if manufacturers choose to pass along some of the savings.

Have a question or comment for "Ask the Builder?" You may email Mike Ferraro at mike@ferrarobuilders.com.

Mike Ferraro is president of Ferraro Builders and past president of the Home Builders Association of Grand Traverse Area. Ferraro Builders is a full-service design and build firm and Certified Green Builder and Energy Star Partner specializing in Custom Homes, Timber Frame Homes, and Remodeling. BN

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