ENERGY-RELATED TAX SAVINGS OPPORTUNITIES FOR CONSTRUCTION CONTRACTORS AND THEIR CLIENTS

Section 179D (Energy Efficient Commercial Buildings Deduction), which was slated to end after December 31, 2020, has been permanently extended. This section allows the property owner to take a deduction equal to the cost of energy efficient commercial building property placed into service during the year. Eligible property includes (i) interior lighting systems, (ii) heating, cooling, ventilation, and hot water systems, or (iii) the building envelope, to the extent that such property is part of a plan to reduce annual power and energy costs by 50% or more relative to a comparable building. Of particular note is that for Federal, State, or local government projects, the deduction can be allocated to the contractor responsible for designing the property, rather than the property owner.

The solar investment tax credit (ITC) allows a business to claim a federal tax credit for 26% of the cost of solar photovoltaic systems that have commenced construction or been placed into service from 2020 through 2022. Solar panels, equipment, and installation costs are some of the eligible costs for the purposes of this credit.

Section 45 (Electricity Produced from Certain Renewable Resources) allows a taxpayer to claim a tax credit equal to 1.5 cents per kilowatt hour of electricity sold during the tax year from qualified energy resources produced at a qualified facility. Qualified energy resources include wind, biomass, geothermal, solar, solid waste, small irrigation, and marine and hydrokinetic.

Section 45L (New Energy Efficient Home Credit), also slated to end after December 31, 2020, has been extended for one year. This section allows contractors to take a tax credit of up to $2,000 for each energy efficient residential dwelling unit leased or sold during the year, to the extent that the unit’s energy consumption is 50% less than a comparable dwelling unit. To be eligible for the credit, the contractor must obtain certification from a certifier accredited by the Residential Energy Services Network or its equivalent.

01/06/2021