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— Multifamily Properties Quarterly — July 2015
T
here are currently two poten-
tial strategies for obtaining
income tax savings during
the design and construction
of multifamily residential
and commercial developments, and
government facility improvements.
These include maximizing the ben-
efits available through the Internal
Revenue Code Section 45L New
Energy Efficient Home Credit and
Internal Revenue Code Section 179D
Energy Efficient Commercial Build-
ings Deduction.
New Energy Efficient Home Credit
The New Energy Efficient Home
Credit (45L) provides an income tax
credit of $2,000 per qualifying dwell-
ing unit. Developers and investors of
apartments, senior living facilities,
student housing, affordable housing,
mixed-use developments, condo-
minium developments and single-
family homes may apply for the
credit. For a dwelling unit to qualify,
the heating and cooling energy
consumption must be a minimum
of 50 percent less than a baseline
unit designed according to the 2006
International Energy Conservation
Code, and the building envelope
must provide a level of heating and
cooling that is a minimum of 10 per-
cent less than the baseline unit. The
building must be three stories or less
in height above grade.
There are a number of new build-
ing design improvements, which
may allow units to qualify and they
include the following:
• Energy Star appliances;
• Air-conditioning units with a
SEER greater than
13;
• Minimum wall
insulation of R-13;
• Heater efficien-
cy greater than 88
percent;
• Heat pump sys-
tems or hydronic
heat systems;
• Window glaz-
ing, which provides
a solar heat gain
coefficient and
U-factor of 0.35 or
less;
• Building wrap over exterior wall
sheathing;
• High reflective exterior paint; and
• Cool roof designs exhibiting high
reflectivity.
Not all improvements are required,
but a well-designed combination
may provide added tax benefit with-
out adversely impacting the overall
building costs.
The 45L income tax credit will
be recorded as a general business
credit on the income tax return. Tax
returns can be amended to claim
the credit in open tax years. The tax
credit is nonrefundable and is not
subject to recapture rules. The credit
does not reduce the alternative
minimum tax, and provides a carry-
forward of 20 years and a carryback
of one year.
Energy Efficient Commercial
Buildings Deduction
For multifamily residences greater
than three stories, the Energy Effi-
cient Commercial Buildings Deduc-
tion (179D) is an incentive provided
by the federal government allow-
ing a deduction of up to $1.80 per
square foot for the implementation
of energy-efficient improvements.
The deduction can be utilized on
new construction, renovations
or additions. Energy-efficiency
improvements to commercial and
government buildings such as col-
lege dorms may also qualify.
A third-party licensed engineer
or contractor must perform a site
inspection to certify the building’s
energy cost reduction. The building’s
interior lighting, heating, ventilat-
ing and air conditioning, domestic
hot water, and envelope systems are
modeled using Department of Ener-
gy approved software including DOE
2.2, Trace 700, eQuest or EnergyPlus.
The new building construction is
compared to a baseline building fol-
lowing ASHRAE 90.1-2001 standards.
If the modeling results show a
reduction of 50 percent or more
compared with the baseline build-
ing, the building is defined as a fully
qualifying property, and owner, les-
see or designer receives a deduction
of $1.80 per sf. If the results show
a reduction between 10 and 50 per-
cent, the building may be deemed
a partially qualifying property, and
a partial deduction of 60 cents per
sf for each qualifying system is
awarded. For example, in order for
buildings constructed between 2012
and 2014 to qualify for a partial
deduction, one of the following must
be met:
• The building’s interior lighting
system must decrease overall energy
costs by 25 percent;
• The HVAC and domestic hot
water systems must decrease the
overall energy costs by 15 percent; or
• The building envelope system
must decrease overall energy costs
by 10 percent.
Tax savings through energy-effi-
ciency incentives is a proven way to
help offset development costs, while
providing a higher-quality living
environment with lower utility costs
for property managers and residents
in all types of multifamily housing.
These tax incentives are a valuable
benefit for owners, developers and
designers of energy-efficient build-
ings, and should be considered for
new properties or existing properties
that have had significant energy-
efficient improvements.
s
Byron Glenn
Manager,
energy engineer,
CliftonLarsonAllen,
Englewood
Taxes
Tax savings through
energy-efficiency
incentives is a proven
way to help offset
development costs,
while providing a
higher-quality living
environment
