Is your company thinking about saving energy but lacks the resources in your capital budget to finance the project. If your answered yes, you are not alone. Many companies have been approached by Energy Efficiency Consultants, Energy Advisors and their Sustainability Managers, Facility Managers, all wanting to save money by implementing some type of energy conservation measure. The only problem is the measures that really save you money and have with payback times less than three years tend to cost money you may not have planned for. But every day you do not implement these measures it cost you money(the cost of delay). Let’s talk about other ways to finance energy projects.
The first method to creatively finance an energy conservation measure is through cost segregation. Cost Segregation is a lucrative tax strategy approved and endorsed by the IRS since 1997. These improved rulings allow the reclassification of specific real property assets that normally receive a depreciation of 39 years into “tangible personal property” that is now treated as five, seven year property. With land improvements can now be treated as fifteen year property for depreciation purposes. Due to these improved rulings, a percentage of the electrical, plumbing, mechanical, and site improvements of a building, along with hundreds of other components can be allocated into shorter lives translating into immediate cash flow.
The second method is through research and development tax credits. Otherwise known as section 41 of the internal revenue code. The United States offers some of the world’s richest research and development tax incentives, but you are not taking advantage of these credits and getting the cash you deserve. Prior to December 2001, the requirements necessary to qualify for the R&D tax credit were quite stringent. However, in December 2001, the Bush administration issued IRS regulations which made it immensely simpler to qualify for the R&D tax credit. The new regulations allow a broader array of companies to qualify their activities as R&D. In addition, they provide greater flexibility in certain record keeping requirements. If your company has invested time, money and resources to the advancement and improvement of your company’s product or processes, then you likely qualify for the federal R&D tax credit.
The final method to help finance your energy conservation method is through the Energy Policy Act of 2005. Unlike the first to methods which are tax credits, the EPAcT of 2005 is a tax deduction. This tax deduction covers three main areas of energy conservation. These areas are Lighting, HVAC, Hot water and the Building Envelope. The deduction is .60 cents per square foot up to the maximum of $1.80. Lighting may include replacing old fluorescent light bulbs with T-8 or Led lighting. The HVAC could be replacing old inefficient motors or furnaces with more efficient ones. Controls are another option to help conserve hvac energy. The final measure is in the building envelope. The envelope consist of the roof, windows, doors, foundation, insulation. There are many upgrades available that will qualify for this deduction, just make sure you talk to a qualified individual before you spend any money because the upgrade will need to be certified.
These methods for financing your energy conservation measures are all found in the Internal Revenue Code. The important thing to remember is don’t delay our energy project longer than you have to. The cost of delay usually cost more than the cost of implementation. For more information please contact us.