Monday, November 10, 2008

Energy Tax Credits for Commercial Real Estate

Building owners, managers and investors can still qualify for credits of as much as 30% on federal taxes for investments in renewable energy technologies including solar, wind and biomass. Adopted as a rider to the $700 billion Emergency Economic Stabilization Act of 2008, the measure extends existing tax incentives for solar energy by eight years and wind energy by one year. Due to the high cost of solar panels, tax credits have become crucial to making solar installations financially feasible. For example, payback times in sunshine states can be reduced from 10 to 15 years to approximately 7 years. The lower cost of wind turbines as compared to solar panels already fuels investments in wind power. But the real incentive for commercial landlords in the tax measure is a deduction for investments in energy-efficient buildings. Investments equivalent to $1.80 per square foot can be deducted for buildings that achieve at least a 50% energy savings goal. This credit for energy-efficient buildings is available through the end of 2013.

If you are not already aware, the U.S. Department of Energy and the National Renewable Energy Laboratory (Commercial Buildings Section) have a focused initiative directed at achieving greater than 30% energy savings in commercial buildings. In fact, they just released two reports containing recommendations on achieving 50% energy savings (over ASHRAE Standard 90.1-2004) in grocery stores (www.nrel.gov/docs/fy08osti/42829.pdf) and medium-sized retail buildings (www.nrel.gov/docs/fy08osti/42828.pdf).

With financial challenges presenting the biggest impediment to achieving significant energy savings in commercial buildings, tax credits and incentives can do much to soften the impact.