§179D EPAct and Tax
Incentives
Presented by:
Ernst & Morris Consulting Group, Inc.
&
Energy Tax Savers, Inc.
Topics

EPAct(Section 179D)

Available for Energy Efficient Building Projects:




Alternative Energy Tax Incentives


Lighting
HVAC
Building Envelope
Solar, Geothermal, CHP
Bonus Depreciation
Energy Policy Act of 2005 (EPAct)



Extended through 12/31/13
Benefits available from 1/1/06 thru 12/31/13
Incentivized areas:






Lighting
HVAC
Building envelope
Available for New Construction and Existing Buildings
Also available for tenant owned lease-hold
improvements
Benefit available for Primary Designers on
Government Projects
Chat Questions

Wal*Mart leases a space from Landlord. After 5 years in the space,
Wal*Mart decides to upgrade to energy efficient lighting. Wal*Mart pays an
electric installer to do the upgrade. Who gets the 179D tax deduction?

Avalon builds the nations most energy efficient 1000 unit garden apartment
complex. Can they qualify for Section 179D?

Green Depot puts Solar Panels on their 1950’s(never been updated)
warehouse. The panels reduce the buildings outside electrical needs to Zero.
Can Green Depot take a Section 179D deduction?

General Motors installs energy efficient lighting in one of its manufacturing
facilities. Can GM take advantage of Section 179D?
Important IRS Notice Rev. Proc. 2011-14


5
Taxpayers can now use 3115 process to catch up
on all missed EPAct deductions
 Great for 2006/2007 new construction and
retrofits
 Excellent for investor groups to avoid amended
individual returns
Many property owners are combining prior and
current projects for the $1.80
Who’s using EPAct?
First Movers
Reasons
Retailers &
Supermarkets

Distribution Centers




Hotels



Parking Garages


Industrial Facilities
Energy is a major operating cost
Centralized facilities’ management
Major growth market
High economic return
Lighting & Natural Gas Heater Combination
Meet ASHRAE 2004 = Full EPAct
Bi-level not required in guest rooms
Industry has reorganized
Large facilities drive large EPAct benefits
Huge Category

Large facilities drive large EPAct benefits
Existing lighting is being phased out by law
Lighting & Natural Gas Heater Combination
Office Buildings

LED’s
Car Dealerships

Large deductions for lighting and service bay heaters
32,000 dealers down to 18,000 dealers



What’s it Worth?
Building
Lighting
HVAC
Envelope
Sample
Minimum
Maximum
Maximum
Maximum
Square Footage
Deduction
Deduction
Deduction
Deduction
Total
50,000 $
15,000 $
30,000 $
30,000 $
30,000 $
90,000
100,000 $
30,000 $
60,000 $
60,000 $
60,000 $
180,000
250,000 $
75,000 $
150,000 $
150,000 $
150,000 $
450,000
500,000 $
150,000 $
300,000 $
300,000 $
300,000 $
900,000
750,000 $
225,000 $
450,000 $
450,000 $
450,000 $
1,350,000
1,000,000 $
300,000 $
600,000 $
600,000 $
600,000 $
1,800,000
*Note – with government buildings, the benefit goes to the primary designer
Chat Questions

How much did the Primary Designer pay for the new lighting
system for a new public High School?

What was the Income Tax Liability for our Primary Designer
Client that only designs K-12 schools in:
 2006?
 2007?
 2008?
 2009?
 2010-13?

Do you have any A & E clients that might be
interested?
Commercial Building Immediate Deductions


Stimulus Package emphasizes Energy
Efficiency in Government Buildings
Architects/Engineers/Lighting Designers

DOE goal to incentivize green design in
government building sector

Benefits passed through to the primary designer of:
 Federal
 offices, military bases, court houses, post office, labs etc.
 State
 offices, transportation facilities, state universities, court
houses etc.
 County, city, town, village etc

offices, schools, town halls, police, fire, libraries etc.
What’s in it for
Architects/Engineers/Lighting Designers?

Growth in this EPAct area for government
building designers is exploding

Successful Design Niches:





K-12 Public Schools
State Universities and Colleges
Military Bases
Parking Garages
Airports
Allocation of $120,000 Tax Deduction
Government Buildings Only
4 Party
2 Party
Allocation
Allocation
Lighting Specifier
Engineer
Architect
Design & Build
Contractor
Lighting Specifier
Design & Build
Contractor
$30,000
$30,000
$30,000
$30,000
$60,000
$60,000
3 Party
No
Allocation
Allocation
Lighting Specifier
Engineer
Design & Build
Contractor
$40,000
$40,000
$40,000
Lighting Specifier
$120,000
How do you Qualify?
Mechanics

Deductions based on improvements over ASHRAE 90.1 2001

Energy efficient improvements must be depreciable assets


Available for installations completed between 1/1/06 &
12/31/13


Converts 39 year depreciation to current deduction
Can begin in prior years
Deduction amounts:

Lesser of total cost or:


$1.80/sq.ft. Whole Building
$0.60/sq.ft. Individual Systems
a. Lighting
b. HVAC
c. Building Envelope
ASHRAE (American Society of Heating, Refrigerating and Air-Conditioning Engineers)
HVAC (Heating, Ventilation & Air Conditioning)
8 Ways to Capture Tax Deduction
•
(1)Whole
–
•
•
Building ($1.80/ft2)
50% Energy Cost Reduction below standard
Permanent Rules partial deduction ($0.60/ft2)
Building
Envelope
Lighting
HVAC
Alternative 1
(2)162/3
(3)162/3
(4)162/3
Alternative 2
(5)10%
(8)Interim
–
%
(6)20%
%
%
(7)20%
Lighting Rules ($0.30/ft2-$0.60/ft2)
25% to 40% prescribed Light Power Density (LPD) reduction
below standard
Chat Questions

What is the maximum potential tax deduction for:





100,000 sq.ft. lighting project for
100,000 sq.ft. lighting project for
building?
100,000 sq.ft. lighting project for
 Who gets the Tax Deduction?
100,000 sq.ft. lighting project for
building?
100,000 sq.ft. lighting project for
warehouse?
a new casino?
a commercial office
an IRS office building?
a Red Cross office
a commercial
Where are the Benefits

Lighting, Lighting, Lighting

Lighting Controls

Specific Types of HVAC
 Geothermal
 Thermal Storage
 Central Chiller plants with small
buildings(<150,000sq.ft.) in Campus

LEED Buildings
Interim Lighting Rules


Meet W/ft2 targets
Add’l Requirements



Bi-level Switching
Meet ASHRAE 90.1
Requirements
Meet IESNA minimum
light levels
2001
Standard
LPD, W/ft2
25%
Improvement
40%
Improvement
Office
1.3
0.975
0.78
Manufacturing
2.2
1.65
1.32
School/Library
1.5
1.125
0.90
Retail
1.9
1.425
1.14
Warehouse
1.2
50% required, 0.60
% Improvement
25%
26%
27%
28%
29%
30%
31%
32%
33%
34%
35%
36%
37%
38%
39%
40%
Tax Deduction
$/sq.ft.
0.30
0.32
0.34
0.36
0.38
0.40
0.42
0.44
0.46
0.48
0.50
0.52
0.54
0.56
0.58
0.60
LPD (Light Power Density)
Chat Questions


Does the room your sitting in have Bi-level
Switching?
 How?
What is the Watts/Sq.ft. of your Room?


If you are lit by 4 ft. fluorescent tubes assume 28 watts
for each tube in your space. Some fixtures have two
tubes, others 3 or 4.
 How many tubes(lamps) are in your fixtures?
To measure sq.ft. count the ceiling tiles
 Do you have 2’ x 4’ ceiling tiles or 2’ x 2’ ceiling tiles?
Definition of Bi-Level Switching


A room, as defined by floor to ceiling walls, must
have at least two light levels other than “on and
off”.
This can be met in a number of ways:





Dimming ballasts create an infinite number of light
levels
50% of lights in a room on one switch, 50% on another
or 60/40, 70/30…
Occupancy controls on separate lighting circuits
Even lights on at least 2 separate circuit breakers would
technically qualify
Exceptions

Storerooms, Restrooms, Lobbies, Hotel & Motel
Guestrooms, and Garages
Benefiting from ASHRAE 2004 & 2003 IECC
2001
Std.
(W/ft2)
25%
Over
2001
40%
Over
2001
2004
Std.
(W/ft2)
2004
% over
2001
2001
Std.
(W/ft2)
25%
Over
2001
40%
Over
2001
2004
Std.
(W/ft2)
2004
% over
2001
Automotive Facility
1.5
1.125
0.9
0.9
40%
Movie Theater
1.6
1.2
0.96
1.2
25%
X
Convention Center
1.4
1.05
0.84
1.2
14%
Museum
1.6
1.2
0.96
1.1
31%
X
Court House
1.4
1.05
0.84
1.2
14%
Office
1.3
0.975
0.78
1
23%
Bar Lounge/Leisure
1.5
1.125
0.9
1.3
13%
Parking Garage
0.3
0.225
0.18
0.3
0%
Cafeteria/Fast Food
1.8
1.35
1.08
1.4
22%
Theater
1.5
1.125
0.9
1.6
-7%
Family Dining
1.9
1.425
1.14
1.6
16%
Police/Fire Station
1.3
0.975
0.78
1
23%
Exercise Center
1.4
1.05
0.84
1
29%
X
Post Office
1.6
1.2
0.96
1.1
31%
Gymnasium
1.7
1.275
1.02
1.1
35%
X
Retail
1.9
1.425
1.14
1.5
21%
Health Care Clinic
1.6
1.2
0.96
1
38%
X
School/University
1.5
1.125
0.9
1.2
20%
Hospital
1.6
1.2
0.96
1.2
25%
X
Sports Arena
1.5
1.125
0.9
1.1
27%
Hotel
1.7
1.275
1.02
1
41%
X
Town Hall
1.4
1.05
0.84
1.1
21%
Library
1.5
1.125
0.9
1.3
13%
Transportation
1.2
0.9
0.72
1
17%
Manufacturing
2.2
1.65
1.32
1.3
41%
X
Warehouse
1.2
2
1.5
1.2
1
50%
X
Workshop
1.7
Motel
X
0.8
1.275
1.02
1.4
18%
X
X
2003 IECC
Commercial Energy Codes
Arkansas
New York
Colorado
Montana
Connecticut
Nebraska
West Virginia
2004/2006 IECC
Illinois
New Hampshire
Rhode Island
Pennsylvania
Maryland
Kentucky
South Carolina
Georgia
Wisconsin
Kansas
Oklahoma
New Mexico
Utah
Idaho
Iowa
ASHRAE 04
Virginia
Louisiana
Maine
New Jersey
Ohio
Nevada
State Specific
California
Oregon
Florida
Vermont
North Carolina
Washington
Massachusetts
Federal Building Energy Code Standards

As of 12/31/2010 all states are required to have
codes at ASHRAE 2004 or better



Impacts new construction and major retrofits
This is a big change for states at no or older
energy codes
States must certify they are at this level or
justify why they are not
Chat Questions

Do you reside in one of the 35 states?

Do you have clients doing any new construction?
 What type of Building?
 Is it in a category where the building code
automatically put them in the Watts/sq.ft. zone
for tax deductions?
Major Lighting Bans
Lighting Type
Date Effective
Most Probe Start Metal Halides
January 1, 2009
Manufacturing banned
T-12s¹
July 1, 2010
Manufacturing banned
Distribution now limited to
ten per pack
Incandescents²
Beginning 2012-2014
Ban on current efficiency
levels beginning 2012
¹ Residential is excluded from the ban, provided power factor is less than 0.90.
² Potential replacements
1) High efficiency incandescents
2) CFL’s
3) Induction
4) LEDs
Biggest EPAct Growth Area
LED
LED
LED
Lighting Retrofit Economics
(For Existing Buildings)

Energy Savings is usually the main driver

In some states, Utilities offer Rebates for energy
efficient lighting Installations

Tax Savings is the newest opportunity

Demand Response is another potential income stream

Capitalizing on all the incentives can bring payback for
projects to below 2 years and in some cases less than
1 year
Retrofit Math
100,000 sq.ft. Warehouse
250 Metal Halides replaced with HiBay Fluorescents

Cost of Project = $75,000 (Assumes $300/fixture installed)

Annual Energy Savings = $24,461/yr


Rebate = $24,600



This is a sample rebate, using LIPA’s rebates. Some areas have no rebate system others have larger
rebates.
Added PV of Tax Deduction = $13,461


250 x (0.458 kW-0.234 kW) x 12 hrs/day x 7 day/wk x 52 wk/yr x $0.10/kWh
40% combined tax rate, 8% discount rate, compared to 39 yr depreciation removed(expensed) in year 15
Payback = 1.5 Years
IRR = 58%
Without rebate, Payback = 2.5 yrs, IRR = 37%
Chat Questions

Do you have clients doing Lighting retrofits?

If no, Do you have clients with lighting like this?

Should they be retrofitting?
What Tends to Qualify on the
HVAC side?
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Geothermal (Ground Source Heat Pumps)
Thermal Storage
High Efficiency VRF units in Rental Apartments/Dorms/Hotels
Centralized HVAC in Rental Apartments/Dorms/Hotels
Energy Recovery Ventilation
Demand Control Ventilation
Chillers in buildings < 150,000 sq ft
Direct fired heaters in no AC Industrial Spaces
VAV (variable air volume devices) in buildings <75,000 sq ft
Chilled Beam
Magnetic Bearing Chillers
Gas fired chillers combined with electric chillers to peak shave
Non-conditioned Energy Overview

In heated only warehouse, industrial and self
storage spaces (non air conditioned spaces)
lighting is the biggest energy user.
-Typically lighting makes up 60-70% of building energy
use with heating making up the 40-30% difference
Warehouse Heater & Efficient Lighting
Location
Jacksonville, FL
Irving, TX
S. Brunswick, NJ
Franklin, NJ
Middleton, PA
Bristol, PA
Bristol, PA
Edison, NJ
Oxford, MA
Hauppauge, NY
Memphis, TN
Houston, TX
St. Tammany Parish, LA
Edison, NJ
Atlanta, GA
Edison, NJ
Eagan, MN
Whippany, NJ
Joplin, MO
Totals
Sq.Ft.
642,219
701,250
200,000
140,000
61,067
273,080
60,000
43,192
68,800
80,324
231,345
895,000
852,000
95,654
600,814
105,403
570,567
292,458
146,901
6,060,074
W/sq.ft.
0.69
0.40
0.75
0.45
0.61
0.37
0.76
0.54
0.76
0.63
0.39
0.45
0.44
0.28
0.44
0.33
0.44
0.39
0.31
Heaters
3(1,850 MBH ea)
20(400 MBH ea)
4(1,200 MBH ea)
1(1,850 MBH) & 1(1,600 MBH)
2(1,200 MBH ea)
2(2,200 MBH) & 4(1,600 MBH) & 1(800 MBH)
1(1,600 MBH) & 1(1,200 MBH)
1(950 MBH)
1(950 MBH) & 1(800 MBH)
1(3,200 MBH)
4(1,600 MBH ea)
1(1,200 MBH)
5(200 MBH ea) & 2(100 MBH) 1(400 MBH)
15(2 MBH ea)
11 (200 MBH ea)
1(1,600 MBH)
2(600 MBH) & 2(400 MBH)
Special System
1 (1,000 MBH)
$/sq.ft.
Tax Deduction
$1.20/sq.ft.
$770,663
$1.80/sq.ft.
$1,262,250
$1.20/sq.ft.
$240,000
$1.80/sq.ft.
$252,000
$1.20/sq.ft.
$73,280
$1.80/sq.ft.
$491,544
$1.20/sq.ft.
$72,000
$1.20/sq.ft
$51,830
$1.20/sq.ft.
$82,560
$1.20/sq.ft
$96,389
$1.80/sq.ft.
$416,421
$1.80/sq.ft.
$1,611,000
$1.80/sq.ft.
$1,533,600
$1.80/sq.ft.
$172,177
$1.80/sq.ft.
$1,081,465
$1.80/sq.ft.
$189,725
$1.80/sq.ft.
$1,027,020
$1.80/sq.ft.
$526,424
$1.80/sq.ft.
$264,422
$10,214,770
For Non-Conditioned Buildings

Step 1:
 Put in energy efficient lighting at the EPAct
level

Step 2:
 Put in an energy efficient heater

Step 3:
 Use excess deductions for your roof
Step 1: Lighting

The key is to reduce the wattage levels to the
EPAct target levels.

This process will result in a large energy cost
reduction.

Achieves large tax deductions at the 60 cent per
square foot level.
Step 2: HVAC

Non-conditioned buildings
 Install very energy efficient heaters.
 Many clients utilize Cambridge direct fired
heaters.
Step 3: Physical Shape

Pre-solar
 All worn and aged roofs need to be upgraded.
 Good time to consider added insulation
 Certain solar systems a white reflective roof
 Move rooftop equipment, including upgrade
HVAC off of the roof
 Strategy: Use the lighting and HVAC tax
upgrades (above) to drive large tax
deductions for roof improvements.
New Construction Data Requirements



Project general information
Square footage
Lighting projects
 CAD drawings (.dwg or .dwf), Architectural &
Electrical sets
 Fixture schedule
Retrofit Lighting Data Requirements







Project general information
Square footage of each space
Bi-level lighting confirmation
Invoices (both material & labor)
Fixture descriptions (model number, Lamp count, ballast type)
Fixture count (new and retained)
Foot candle of rooms
*most efficient for Energy Team to work with contractor
Energy “Modeling” required for HVAC & Envelope

HVAC and Building Envelope
 Modeling required (IRS Approved)
 No partial deductions
 Almost exclusively new construction and



Geothermal
Thermal Storage
LEED
(Leadership in Energy & Environmental Design)
certified
Chat Questions
 Do
you have clients building LEED
buildings?
Putting in Geothermal?
 Putting in Thermal Storage?

Understanding Energy Models

IRS has approved thirteen types of modeling
software





eQUEST, Trane Trace 700, Energy Plus, Carrier HAP,
VisualDOE, EnergyGauge, DOE2.2, DOE2.1E & 2.1EJJH, Owens Corning Commercial Energy Calculator,
Green Building Studio, EnerSim, IES <Virtual
Environments>
other submissions are in process
Important modern Energy management tool.
Currently required for all HVAC and building envelope
deductions and for whole building lighting
alternative.
In many jurisdictions, rebates are provided for all or
substantial portions of modeling costs.
Best Opportunities





Architect & Engineering firms doing Government Projects
Large spaces - tax deduction is based on square footage
Cost segregation projects for new and/or retrofit
construction (post 1/1/2006)
LEED Buildings (gold & platinum)
Owners of buildings > 50,000 sq. ft. investing in energy
efficient lighting
CPA firms can Expand Service Offerings
Commercial Building
Owners
• Retailers
• Industrial Buildings
• Warehouses
• Office Buildings
Primary Designers of
Government Buildings
• Architects
• Engineers
• Lighting Designers
• Design & Build Firms
American Recovery and Reinvestment Act of 2009
Tax Credits & Grants in Lieu of Tax Credits
Specified Energy Property
Credit Termination Date
Applicable Percentage of
Eligible Cost Basis
Large Wind
Closed-Loop Biomass Facility
Open-loop Biomass Facility
Geothermal under IRC sec. 45
Landfill Gas Facility
Trash Facility
Qualified Hydropower Facility
Marine & Hydrokinetic
Solar
Geothermal under IRC sec. 48
Fuel Cells
Micro turbines
Combined Heat & Power
Small Wind
Geothermal Heat Pumps
Jan 1, 2013
Jan 1, 2014
Jan 1, 2014
Jan 1, 2014
Jan 1, 2014
Jan 1, 2014
Jan 1, 2014
Jan 1, 2014
Jan 1, 2017
Jan 1, 2017
Jan 1, 2017
Jan 1, 2017
Jan 1, 2017
Jan 1, 2017
Jan 1, 2017
30%
30%
30%
30%
30%
30%
30%
30%
30%
10%*
30%**
10%***
10%
30%
10%
*For the first time in U.S. Tax History 100% of the cost of an alternative energy project can be expensed for tax purposes for projects
completed after September 8, 2010 and before December 31, 2011.
*Also cash grants equivalent to the 30% and 10% credit amounts are available through December 31, 2011
What We Deliver




Pre-project EPAct Marketing Material
Complimentary Design Analysis
Complimentary Tax Benefit Assessment
Comprehensive EPAct Tax Package
-Energy Reduction Plan
(ETSI Software)
-Building Energy Model
(ETSI Reviewed)
-Tax Deduction Calculation
(ETSI Software)
-Owners Manual, highlighting energy savings
-Design Certification
(ETSI Document Creation and Review)
-Post-Implementation Inspection
(ETSI Document Creation and Review)
-Audit Assistance
100% Bonus Depreciation


Placed in Service between 9/9/2010 and
12/31/2011
Tax Depreciation Schedules less than 20yrs

Examples



Alternative Energy(Solar, Wind, Geothermal, etc.)
Outdoor Lighting not affixed to the building
Qualified leasehold improvements
 Non structural interior improvements to non residential real property
pursuant to a lease.
 Building must be at least 3 years old
 Original use must commence with taxpayer
Energy Tax Savers Inc.
http://www.costsegandenergycom/
Ernst & Morris Consulting Group, Inc.
2190 Dallas Highway
Marietta, Georgia 30064
1-800-267-8734
Jacob Goldman jacob.goldman@energytaxsavers.com
Michelle Arnold marnold@costseg.com