It’s no secret to any businessperson that incorporating tax benefits into any business plan is a winning formula. Decades ago, the best way to “save” on a building was to use the least expensive materials or labor possible and bring down the total cost or value of the building to ensure that the taxes you paid would be as low as possible. Nowadays, there are more innovative and longer-term ways to save on taxes. For many real estate investors especially, incorporating environmentally friendly building features has not only become a way to save on their taxes but a way to also help them reach the younger generations who are more conscious of reducing their carbon footprint.
What tax credits are available to investors for implementing environmentally friendly building features?
Below are just a few ways that incorporate environmentally-friendly features help you save on your taxes:
- Section 45L Tax Credits: these federal tax credits are available to those whose buildings are built to have heating and cooling levels below national energy standards or whose buildings, even without specialized equipment, operate that way. In some states, such as California, the building code is already more stringent than the federal tax credit rules; thus, any new construction very likely already qualifies for this credit.
- 179D Deductions: these federal tax deductions apply when you improve a building to help it be more “green.” Examples of qualifying investments include energy-efficient lighting for building interiors, HVAC or hot water systems, or energy-efficient building envelopes, which include building wraps such as walls, doors, windows, and roofs. Once incorporated, this tax credit can provide you up to $1.80 per square foot credit if a reduction of 50% of the energy and power costs is accomplished. Importantly, the person who applies for this deduction should be the owner or lessee of the building and must get a certification from an engineer.
- Energy Investment Tax Credit: this essential credit helps lower the cost of building or procuring energy-saving equipment that helps improve energy use or consumption. This credit can range from 10% of the cost for geothermal, combined heat and power or microturbine power sources to 30% for solar, small wind, or fuel cell power sources. However, not just any equipment at any time will do. Acquired or built equipment must meet specific standards and be in place the year you take the credit.
How do I make sure to maximize my eligibility for these tax credits?
At MKS&H, we’re committed to ensuring that you receive every tax credit that you’re eligible for. Our tax advisors and accountants can work with you to plot out a future where you incorporate environmentally friendly additions to your investments to help reduce your tax bill. Our Maryland firm is here no matter your questions on environmental tax credits or other tax credits that you or your business may qualify for. Contact our professionals today at MKS&H so we can begin to help reduce your tax bill and create your lower-taxed future.