Turning Tax Credits Into Cash

The tax code is reshaping the landscape for the construction industry. The entire built environment is embracing green initiatives, aided by significant incentives from the current (and former) administration.

The government is investing heavily in clean technology, and many of the most lucrative incentives are being delivered through the tax code. Construction businesses can leverage these incentives to keep busy and profitable.There have never been more options for turning green tax incentives into cash. However, the time for action and maximum use of these incentives is now. Applications for some of the most generous programs are already being submitted, and some of these programs will eventually expire.

Turning Tax Credits into Grants

In the current economic environment, the payment of cash taxes may be a low priority. However, there is a way that contractors can currently benefit from these incentives, regardless of their tax situation. The Treasury Department has begun accepting applications for a program that allows businesses to receive cash grants in lieu of two of the most valuable energy tax credits.

The grant program was created by this year’s economic stimulus bill to rekindle interest in energy projects after the economic downturn diminished investor demand for tax credits. Developers involved in projects to build alternative energy property could benefit from the $3 billion the Treasury Department has already pledged to the program.

The grants can be taken in lieu of either the Section 45 Production Tax Credit or Section 48 Energy Tax Credit. They are worth up to 30 percent of qualifying investments made in alternative energy generating assets such as solar, wind, geothermal or fuel cell property.

The cash grants provide an alternative for taxpayers without taxable income. They may be especially beneficial for taxpayers as part of a financing package, and they eliminate the need for tax-motivated investors.

Tax Credits for the Middle-Man

The Department of Energy and the Treasury Department have also begun accepting applications for a new Section 48C Advanced Energy Property Credit created by the 2009 stimulus bill. This 30 percent credit is different from many of the other incentives, because it is not targeted to the end user who places property in service.

Instead, the credit is meant to encourage the manufacture of the qualified energy property itself, and provides a 30 percent tax credit for investments in projects that re-equip, expand or establish a manufacturing facility for the production of qualified energy property. Property that produces energy from sun, wind, geothermal deposits or other renewable resources will qualify.

This credit is particularly valuable for manufacturers that don’t necessarily place energy property in service themselves, but could also help developers that construct new manufacturing facilities. The Treasury can allocate up to $2.3 billion to the program, and all applications for the first round of credit allocations must be received by December 16, 2009.

Old Favorites

Don’t forget about the older tax benefits Many of the longest-standing green incentives remain the most valuable.

The energy-efficient commercial business deduction under Section 179D provides businesses up to $1.80 for every square foot of space in new or existing buildings where they install interior lighting, HVAC or hot water systems, or building envelope property that reduces power use to 50 percent compared to a reference building.

The energy-efficient new homes credit under Section 45L is offered directly to residential homebuilders and developers. Builders receive a credit of up to $2,000 for newly constructed homes meeting certain energy-efficiency standards.

Two additional credits that aren’t aimed directly at construction companies, provide customers with valuable incentives for certain projects. Section 25C allows individuals a 30 percent credit of up to $1,500 for installing energy-efficient property such as water heaters, furnaces, boilers, heat pumps, air conditioners, building insulation, windows, doors or roofs. Section 25D provides a 30 percent personal tax credit for energy-efficient property such as solar water heaters, geothermal heat pumps, fuel cells or wind turbines.

Saving Green by Building Green

Remember, there are a number of requirements and restrictions for all green tax incentives that must be considered. Each incentive has benefits for certain types of companies in certain situations, so companies should run the numbers before making any decisions. Consulting a professional who specializes in construction tax law may help your company take advantage of everything the tax code has to offer.

Construction Business Owner, October 2009