Tax Incentives For Architects Of Energy Efficient Metal Buildings
By Randall Turner, Turner Financial Consultants
“What would you do with $1,479,000?” I asked the architect on the other end of the line.
The silence that greeted my question lasted so long that I thought my friend had hung up. Perhaps he thought that I’d finally lost it. After all, who wouldn’t think that this question was just a little out of the norm?
Yet, after I explained that the Federal Government’s EPAct of 2005 would enable his firm to claim a large portion of this amount he became quite animated. So animated in fact that suddenly all the architects in the office wanted to be in on the excitement and joined in on the call.
This architectural firm had designed two million square feet of public buildings to be energy efficient, after January 1, of 2006, and according to the fine print of the law they were entitled to claim most of this tax benefit. After calculating the after-tax benefit, the firm could receive almost $1.5m if all building projects could be certified.
What exactly is the EPAct of 2005 and why is the A/E community getting so excited?
The EPAct of 2005 provides commercial building owners with up to $1.80 a square foot in Section 179 deductions for building energy efficient buildings. So long as the building was commissioned after January 1, 2006 and exceed the ASHRAE standard of 2001 for energy efficiency, for a similar building in a similar geographical region, by 16 2/3% then the tax deduction can be taken.
However, government buildings have no use for a tax deduction. Still, the US Congress wanted government buildings to be energy efficient and decided to include a passage in the law to incentivize Architects and Engineers of government buildings. The only other major stipulation is that the Architect or Engineer of record cannot self-certify.
For example, a qualifying 50,000 Square Foot public building that meets the IRS criteria would generate a maximum $1.80 SF Deduction x 50,000 SF. The architect or engineer of record would be entitled to this $90,000 deduction from his taxable income and given a Federal Tax of 34% and a 9.99% State Corporate Tax (PA in this example) the resulting after-tax benefit is $39,591!
As many architects have learned, the ROI for building metal buildings is already quite high compared to conventional buildings. The ability to upgrade the insulation packages in metal buildings, to achieve the higher efficiency required by the law, is very easy to do and the additional cost is minimal.
Metal building manufacturer’s building design software requires just a simple click of the mouse to change all the dimensions and related structures to accommodate the additional insulation. Also, these metal building manufacturers are used to the increased insulation requirements and have tall clips and insulating blocks (which are required to pass muster for the deduction) to accommodate increased insulation.
To qualify for the full deduction, the architect of the public building must make investments designed to reduce total energy costs by 50% or more. A partial deduction of $0.60 per square foot is available for investments in one of three systems: lighting; heating and cooling; or building envelope, designed to reduce energy costs by 16 2/3% (i.e. one-third of the 50% requirement). Lighting may receive up to $0.30 to $0.60 deduction for reductions in lighting power density from American Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) 90.1-2001 baseline (as in effect April 2, 2003), which is a widely used industry standard. Since a majority of states’ standard building codes are based on the subsequently developed ASHRAE 90-1-2004 or later iterations, most buildings in these states will qualify for some or all of the deductions.
To claim the 179D deduction, the architect or engineer of record must obtain a certification with respect to the property by an independent licensed engineering firm using modeling guidelines determined by the U.S. Department of Energy. The Energy Efficiency study, with a signed certificate, is not attached to the taxpayer’s return but is instead maintained in the taxpayer’s file for future documentation in the case of an IRS inquiry or examination.
Is all this worth doing? Our clients after-tax return investment (ROI) for the studies on smaller buildings (less than 50,000 SF) average at least 160% and increases to well over 500% on larger buildings.
If you are still not convinced to take advantage of the EPAct of 2005 for constructing metal buildings, you should know that architects/engineers are eligible for the 179D deduction, for their use – or for trading against the design fees, for the design of energy-efficient systems in new or existing public buildings owned by a Federal, state or local government.
Now that is a financial incentive worth having!
Nicknamed, "The Dean of Cash Flow", Randall Turner, MBA, author, teacher, seminar speaker, former record-breaking salesman, CFO, and construction company president now instructs companies across America and Canada on how to improve sales and cash flow. Turner is frequently called upon to provide sales and financial training seminars and to act as a Turn-Around Specialist for struggling companies. To contact him about speaking at your next event, visit www.tfcmoney.com, email cashflow@tfcmoney.com, or call 814-331-9599.
For more columns by a host of other contributors, click here.