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CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS.
If no column is present: click Bookmarks or Pages on the left side of the window.
If no icons are present: Click View, select Navigational Panels, and chose either Bookmarks or Pages.
If you need assistance or to register for the audio portion, please call Strafford customer service at 800-926-7926 ext. 10
Building Green: Legal and Tax Issues in Commercial and Residential Construction
Navigating the Regulatory and Legal Challenges of Sustainable Real Estatepresents
Today's panel features:
Jeffrey D. Masters, Partner, Cox Castle Nicholson, Los Angeles
CJ Aberin, Senior Manager, KBKG Inc., Pasadena, Calif.
Don Neff, President, La Jolla Pacific, Ltd., Irvine, Calif.
Tuesday, April 21, 2009
The conference begins at:1 pm Eastern12 pm Central
11 am Mountain10 am Pacific
The audio portion of this conference will be accessible by telephone only. Please refer to the dial in instructions emailed to registrants to access the audio portion of the conference.
A Live 90-Minute Audio Conference with Interactive Q&A
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Building Green: Commercial Tax Incentives & Strategies
Presented by:CJ Aberin, Electrical EngineerSenior Manager
www.costsegregation.com
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Overview
Overview of the Energy Efficient Commercial Building DeductionBenefits & How to Achieve DeductionEnergy Tax Credits & Other Tax Saving Opportunities
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
What is the Energy Efficient Commercial Building Deduction?
IRC Section 179D allows for an immediate depreciation deduction of up to $1.80/sf for “commercial buildings”that achieve a 50% reduction in total energy and power costs.
Building EnvelopeHVACInterior Lighting
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
History of Energy Deduction
2005 – Energy Policy Act of 2005 enacted (aka “EPAct”)
Deduction effective 1/1/06 through 12/31/07Notice 2006-52 – IRS issues interim guidanceLater extended through 12/31/08Notice 2008-40 – clarifies previous guidanceEmergency Economic Staibilzation Act of 2008 (aka bailout bill) extends 5 more years through 12/31/2013
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Energy Consumption in 2000
Problem = Buildings are responsible for almost half of all US energy consumption
Buildings consume 76% of all electricityLarge contributor of carbon dioxide
*Source: Architecture 2030
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Opportunity to Solve Problem
300B sf of buildings as of 2005Every year,
1.75B sf of buildings is torn down5B sf is renovated5B sf is newly constructedBy 2035, 75% new or renovated
*Source: Architecture 2030
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Who Benefits?
Whoever makes investment and places in service (PIS)
Building owner or landlordTenantREITs
Designers for government buildingsBuilders and developers who don’t PIS are not eligible
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
What is a Commercial Building?
“Commercial Buildings” includesPublic & government buildingsTypical commercial buildings (i.e. office, retail, industrial, etc…)Rental housing that is 4 stories or higher
ASHRAE (American Society of Heating, Refrigerating and Air-Conditioning Engineers) Standard 90.1-2001 defines buildingsMust be located in the United States
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
What’s Eligible?
Ground up constructionRenovations and retrofitsApplies to affected square footagesPIS between 2006 through 2013
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
About the Deduction
Deduction is treated as an amortization deductionSubject to 1245 recaptureDeduction limited to amount invested in energy efficient property.
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Benefits Overview
Multiple paths to deductionWhole $1.80/sf for 50% or greater reduction in total annual energy cost related to HVAC and interior lighting in comparison to ASHRAE Standard 90.1-2001Partially Qualifying Property
Up to $0.60/sf for Building EnvelopeUp to $0.60/sf for HVACUp to $0.60/sf for Interior Lighting
Fractional deduction through Interim Rule
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Various Ways to Achieve DeductionFully
Qualifying Property
Partially Qualifying Property
Envelope HVAC Lighting (Permanent Rule)
Interim Lighting Rule(PIS before publication of final 179D regs)
2006-52 Energy & Power Cost Reduction Requirement *
50% 16-2/3% 16-2/3% 16-2/3% 25% to 40% LPD Reduction (50% LPD Reduction for Warehouse) + other factors
2008-40 Energy & Power Cost Reduction Requirement *
50% 10% 20% 20% 25% to 40% LPD Reduction (50% LPD Reduction for Warehouse) + other factors
Tax Deduction $1.80/sf $0.60/sf $0.60/sf $0.60/sf $0.30 to $0.60/sf (using applicable % from 2006-52)
* Compared to a Reference Building that meets ASHRAE Standard 90.1-2001
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Various Ways to Achieve DeductionFully
Qualifying Property
Partially Qualifying Property
Envelope HVAC Lighting (Permanent Rule)
Interim Lighting Rule(PIS before publication of final 179D regs)
2006-52 Energy & Power Cost Reduction Requirement *
50% 16-2/3% 16-2/3% 16-2/3% 25% to 40% LPD Reduction (50% LPD Reduction for Warehouse) + other factors
2008-40 Energy & Power Cost Reduction Requirement *
50% 10% 20% 20% 25% to 40% LPD Reduction (50% LPD Reduction for Warehouse) + other factors
Tax Deduction $1.80/sf $0.60/sf $0.60/sf $0.60/sf $0.30 to $0.60/sf (using applicable % from 2006-52)
* Compared to a Reference Building that meets ASHRAE Standard 90.1-2001
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Various Ways to Achieve DeductionFully
Qualifying Property
Partially Qualifying Property
Envelope HVAC Lighting (Permanent Rule)
Interim Lighting Rule(PIS before publication of final 179D regs)
2006-52 Energy & Power Cost Reduction Requirement *
50% 16-2/3% 16-2/3% 16-2/3% 25% to 40% LPD Reduction (50% LPD Reduction for Warehouse) + other factors
2008-40 Energy & Power Cost Reduction Requirement *
50% 10% 20% 20% 25% to 40% LPD Reduction (50% LPD Reduction for Warehouse) + other factors
Tax Deduction $1.80/sf $0.60/sf $0.60/sf $0.60/sf $0.30 to $0.60/sf (using applicable % from 2006-52)
* Compared to a Reference Building that meets ASHRAE Standard 90.1-2001
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Benefit Example of 100,000 sfBuilding ($1.80/sf Deduction)
1st Yr Deduction Increase = $177K1st Yr Cash Flow Increase = $73K*NPV Benefit = $50K**
*Assume 41% Blended Tax Rate**Assume 8% Discount Rate
179D Deduction vs Depreciation Deduction
$0$20,000$40,000$60,000$80,000
$100,000$120,000$140,000$160,000$180,000$200,000
2008 2013 2018 2023 2028 2033 2038 2043
179D Deduction
MACRS Deduction
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Difficulty Levels
50% energy & power reduction cost for HVAC and lighting is achievable but very ambitious.
Requires proactive design from architects & engineers familiar with EPActIn 2005, less than 5% of “commercial buildings”could qualify for full deductionLEED (Leadership in Energy and Environmental Design) certification doesn’t guarantee full deduction
Partial deduction for lighting is much easier
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Strategies to Get There
EnvelopeBetter insulation & windowsUse of daylightingReflective coatings
HVACMore efficient HVAC equipment & controlsGeothermal systems and heat pumpsThermal energy storageEvery 3-watt reduction in lighting power results in roughly a 1-watt reduction in HVAC
LightingMore efficient luminaries, ballasts, and lampsBi-level switchingLighting retrofit project can range from $0.60 to $2.00/sf
And more…
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
The Engineering Process
Certification by “qualified individual”Method of Computation (Energy Simulation Models)Use of DOE-approved software
© KBKG, INC. Cost Segregation Specialists
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Special Rule for Government Owned Building
Government may allocate 179D deduction for use by the designer(s) in year of PIS date.
Designer, architect, engineer, contractor, environmental consultant, or energy services provider who creates the technical specs that incorporate energy efficiency.
Government can allocate to primary designer or among several designers.Deduction doesn’t trigger income.
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Identifying Good Opportunities
Identify opportunitiesLarge square footages (50,000 sf+ ideal)
Industrial Facilities (i.e. Warehouse, Distribution, Manufacturing, etc.)Chain facilities with multiple locations
LEED certified buildingsHigh Energy Star rating (High 90’s)Energy efficient retrofits (i.e. lighting)
Possible “free-riding” for pre-2006 buildings
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Other Incentives
DSIRE – Database of State Incentives For Renewables & Efficiency
Federal, State, Local, Utility & Private Financial Incentives940 promoting Energy Efficiency630 promoting Renewable Energywww.dsireusa.org
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Other Green Building Tax Incentives
30% Tax Credit for solar energy property PIS by December 31, 2016
Equipment which uses solar energy to generate electricity, to heat or cool a structure, provide hot water in a structure, or to provide solar process heat.Equipment which uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlightSolar energy property also has a 5-years MACRS tax life.
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Other Tax Credits (Expires 12/31/2016)
30% tax credit also available for:Certain fuel cell power plantsSmall wind energy property
10% tax credit available for:Equipment used to produce, distribute, or use energy from a geothermal depositCertain microturbine power plantsCertain CHP or cogeneration systemsGeothermal heat pumps
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Another Green Building Tax Strategy
If possible, perform cost segregation studyProvides even greater accelerated depreciation deductionsDoesn’t negatively impact energy efficiency deduction and can be used togetherAllows for a correct and increased allocation of costs for any energy property that qualifies for tax credit (i.e. solar energy property + ~35%)
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www.costsegregation.com© KBKG, INC. Cost Segregation & Tax Credit Specialists
Contact Info
CJ Aberin, Electrical EngineerSenior Manager1-877-525-4462 [email protected]
To learn more about KBKG, visit:www.costsegregation.comwww.kbkgtaxcredits.com
BUILDING GREEN:
Legal and Tax Issues in Commercial
and Residential Construction
Don Neff, President / CEO
La Jolla Pacific, Ltd.
Corporate Office 9571 Irvine Center Drive
Irvine, CA 92618 (800) 645-8955 toll free (949) 336-8900 phone
www.lajollapacificltd.com [email protected]
Additional Offices Located Throughout the US
©2009 La Jolla Pacific, Ltd.
I. Current Trends and Opportunities
A. “Green” has become mainstream, consider the following:
1) 75% of Americans consider themselves “environmentalists”
Source: The Wall Street Journal Survey
2) 87% of Americans say they are “concerned” about the environment Source: Environmental Research Associates
3) 86% of Americans would choose one home over another based on energy
efficiency Source: The Shelton Group
B. Why now? What are the driving forces? 1) Economics 2) Awareness of global warming issues
3) International green building influences
4) Desire for healthier living and working environments
5) Energy codes
6) Environmental regulation and stewardship
C. What does “green” really mean?
Per USGBC:
The Office of the Federal Environmental Executive defines green building as “the practice of 1) increasing the efficiency with which buildings and their sites use energy, water, and materials, and 2) reducing building impacts on human health and the environment, through better siting, design, construction, operation, maintenance, and removal — the complete building life cycle.”
D. Implementing a green building program 1) Prescriptive vs. performance-based programs 2) Select the right program based on your projects goals and objectives
3) Manage buyer expectations
4) Leverage marketing and media opportunities
©2009 La Jolla Pacific, Ltd.
5) Third party verification and commissioning
E. Overcoming green building challenges
1) Start early!!! 2) New technology and materials 3) Trade partner awareness and training 4) More complex assemblies need detailed drawings and specs 5) Consumer awareness and education
# # #
About La Jolla Pacific
With an extensive background in direct construction experience, La Jolla Pacific Ltd. is an industry leader in construction risk management, third-party peer review, green/sustainable building, quality assurance, and forensic investigation services. For more than a decade, the firm has provided its exclusive Shark Repellent® package of proactive defensive strategies to single-family, multi-family and commercial builders across the US. For further information about La Jolla Pacific Ltd.’s array of services, please visit www.lajollapacificltd.com.