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Tax cuts for cutting energy consumption

March 1st, 2009 / By: / Management

Reducing the cost of energy is on every marine fabricator’s mind these days. Saving energy may come with additional costs, but provisions in our tax laws, benefits that increased significantly with last fall’s “Bailout” bill, offset some of those higher, up-front costs.

While lawmakers push for and pass more energy-related tax breaks, our federal tax laws already contain a variety of tax savings for every small business wishing to achieve energy savings. In fact, tax incentive programs offered by the federal government, as well as those offered by local and state governments, combined with programs offered by utility companies, not only reduce the cost of acquiring and installing energy-efficient products, but they significantly reduce the day-to-day costs of operating a marine fabrication business.

Last year, as part of the Emergency Economic Stabilization Act of 2008, solar landed an eight-year extension for an existing 30-percent tax credit for residential and commercial solar installations. Tax credits, those direct reductions of a marine fabrication operation’s tax bills as opposed to a “deduction” that merely reduces the annual tax bill, are not the only tax-related benefits for achieving energy efficiency. The so-called “green buildings” tax credit is an important incentive offered to businesses under our federal tax laws.

Tax breaks are available for commercial buildings, creating significant incentives for making those properties more energy efficient. Businesses can get tax deductions for new or renovated buildings that save 50 percent or more of projected annual energy costs for heating, cooling and lighting, compared to model national standards. Partial deductions are also available for efficiency improvements to individual lighting, HVAC and water heating, or envelope systems.

Our tax rules usually define “commercial property” as that intended for use by retail, wholesale, office, hotel or service users, or for manufacturing or other industrial purposes. Qualified energy-efficient building property includes electric heat pump water heaters, qualified electric heat pumps, qualified central air conditioners, and qualified stoves that use biomass fuels.

Rather than a deduction for the cost of equipment or systems that make a commercial building more energy efficient, a tax deduction of up to $1.80 per square foot is available for owners or tenants of both new and existing commercial buildings. The improvement must save at least 50 percent of the heating, cooling, ventilation, water heating and interior lighting energy cost.

An increasing number of marine fabrication businesses employ solar heating or lighting, and more businesses are installing on-site wind systems. Many of those businesses are eligible for tax credits.

In order to qualify for the tax credits, equipment will either use solar energy to generate electricity, to heat/cool or provide hot water to a structure, or will use solar energy to illuminate the inside of a building by means of fiber-optic distributed sunlight (tube systems and passive solar are not eligible). The credits are available for systems “placed in service” between Jan. 1, 2006, and Dec. 31, 2016.

Owners of small wind systems with 100 kilowatts (or less) of capacity can receive a new tax credit for 30 percent of the total installed cost of the system, not to exceed $4,000. Similar tax breaks are available for geothermal heat pumps, fuel cells and micro turbines.

In addition to the tax incentives provided by our tax laws, there are a number of local, state and utility company programs. The American Council for an Energy-Efficient Economy (www.aceee.org) offers the State Energy Efficiency Policy database, searchable by either state or policy area.

Another database, established in 1995 and funded by the U.S. Department of Energy, is the Database of State Incentives for Renewables & Efficiency (www.dsireusa.org). It provides a comprehensive gateway to detailed information on a variety of state energy policies.

Increasing energy costs and an interest in “going green,” are making marine fabrication business owners think about the environment when planning facility construction or renovation. With future legislation centering on funding energy efficiency, it is important to remember that our current tax laws already help marine fabrication businesses reduce the out-of-pocket, up-front expenditures that are essential to long-term energy savings.

Will your marine fabrication business use those tax-savings to reduce energy costs?

Mark E. Battersby is a tax and financial writer based in Ardmore, Pa.

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