With the rise of sustainability, corporate social responsibility, and the green economy, environmentally-friendly business practices are more popular now than ever before. Many companies are embracing an eco-friendly model, from recyclable packaging to energy-efficient industrial renovations.
This growing popularity hasn’t come out of nowhere — there are a number of financial benefits to sustainability and ways that going green could help your company save green. Let’s take a look at some of the top money-saving incentives for eco-friendly choices:
Energy Efficiency Tax Benefits
The federal government offers specialized tax benefits designed to incentivize energy efficiency in commercial spaces — namely, the 179D Tax Deduction and the 45L Tax Credit. Before your company implements energy-saving renovations, consult with our national tax experts to make sure your planned upgrades qualify for these benefits. At National Tax Group, our specialists can guide you through the documentation and application process so that you don’t miss out on a cent.
179D Tax Deduction
The 179D tax deduction allows newly constructed or renovated properties that have installed energy-saving upgrades to reduce the amount of income subject to income taxes, lowering their overall tax burden. Building owners and eligible architects can deduct up to $1.88 of taxable income per square foot of property if they reduce energy consumption by 50% or more compared to buildings that meet the minimum requirements. Buildings that don’t meet the criteria for the full deduction can still qualify for a partial deduction of up to $0.63 per square foot if they meet other target levels.
The 179D Tax Deduction applies to commercial building owners, architects, engineering firms, and construction firms. Qualifying buildings must be primarily commercial or industrial, and they must use electricity and fossil fuels. Common eligible building types include warehouses, industrial buildings, office buildings, and apartment complexes over three stories tall.
Qualifying energy-saving upgrades include:
- Hot water systems
- Building envelope systems
- Heating, ventilation, and air conditioning (HVAC)
- Interior lighting systems
- Insulation in ceilings, walls, floors, and roofs
- Lighting sensor and controls
45L Tax Credit
In contrast to the 179D Tax Credit, which applies to commercial properties, the 45L tax credit is for builders and contractors who have made energy-efficient upgrades to apartments and homes. Each residential unit that reduces its energy usage by 50% or more earns a $2000 Tax Credit; meaning $2000 is subtracted from their total tax bill. Only occupied units qualify for the credit, but you can claim the credit later on if previously vacant units become occupied.
The 45L Tax Credit applies to properties sold or leased as a residence, such as apartments, single-family homes, condominiums, student housing, and assisted living homes. All buildings must be three stories high or less, not including below-ground parking. Contractors must own the property during construction or renovation to claim the tax credit.
Qualifying energy-saving upgrades include:
- Wall insulation R-13+
- Roof insulation R-38+
- Foundations and slabs with extra insulation
- Vinyl low thermal emissivity windows
- Double or triple-pane windows
- Insulated exterior doors
- Reflective roofing materials
- Air conditioning with a SEER (Seasonal Energy Efficiency Rating) of 13+
- Gas furnaces with at least 80 percent efficiency, or a radiant heating system
Learn more about the 175D Tax Deduction and 45L Tax Credit here.
Increased Consumer Demand For Eco-Friendly Goods
Aside from direct federal rewards for eco-friendly businesses, business owners can also expect an increased consumer interest when they embrace energy efficiency. According to a recent study by First Insight and the Baker Retailing Center at the Wharton School of the University of Pennsylvania, all generations of consumers are willing to spend more on sustainable products.
Notably, nearly 90% of Gen X consumers reported that they would be willing to spend an additional 10% or more for sustainable goods, whereas two years ago, that number was just over 34%. Millennials and Gen Z, which will each make up 27% of the world’s income by 2030, are willing to pay a 31-32% premium on average for sustainable goods.
Sustainability used to be a niche market, but over the last ten years, it has become increasingly more significant in purchasing decisions with no signs of stopping. Transitioning to eco-friendly operations broadens your range of current customers and helps prepare for the new generation of consumers — a win-win move for any business.
How To Fund Eco-Friendly Business Initiatives
The benefits of sustainable business operations are clear, but the upfront costs of purchasing new equipment and implementing new processes still keep some businesses from taking the plunge. However, there are funding options in place designed for this situation. Let’s take a look at a few options that can help your business take the next step.
Research and Development (R&D) Tax Credit
Transitioning to sustainable technology typically requires research and development before implementation, which has the additional advantage of lucrative tax benefits. The Research and Development (R&D) Tax Credit incentivizes businesses to improve or develop their products, processes, or software. It reimburses businesses for resources and activities utilized during research. Many companies mistakenly assume that their operations don’t qualify — but businesses in any industry can apply.
Find out if your project qualifies with the R&D Tax Credit 4-Part Test:
- Permitted Purpose: The research activities are done to improve the quality, function, or reliability of a process or product.
- Technological Uncertainty: The activities must identify information to remove ambiguity in the development or improvement of a production process.
- Systemic Process: The activities must involve stimulation, logical trial and error, assessing alternatives, and refining hypotheses.
- Technological in Nature: The research done relies solely on physical sciences, biological sciences, computer sciences, or engineering.
Research to implement sustainability in your company’s operations could pass the R&D Tax Credit 4-Part Test, provided that it is thoroughly documented and scientifically structured. National Tax Group provides expert documentation to help you obtain this lucrative credit — learn more here.
Property Assessed Clean Energy (PACE) Program Financing
The Property Assessed Clean Energy (PACE) Program tackles the issue of upfront sustainability upgrade costs head-on. The government program provides full upfront financing for energy-efficient upgrades, and property owners pay the amount back over 10-20 years through their property tax bill. Property owners can lower their energy bill — and their carbon footprint — immediately, rather than saving up for months or years.
Qualifying PACE Program projects increase energy efficiency, renewable energy, or resilience against natural disasters. Solar energy installation, upgraded HVAC systems, energy-efficient lighting, roof replacements, water conservation projects, and more all qualify for PACE financing. If any of these upgrades have been waiting their turn on your to-do list, this program can help you cross them off and start saving today.
Consult a National Tax Expert
Before applying for any of these money-saving, energy-efficient tax benefits, it’s important to talk to a national tax expert. Whether your company’s research passes the R&D Tax Credit 4-Part Test, you’re interested in pursuing PACE Program Financing, or your property renovations qualify for the 179D Tax Deduction or 45L Tax Credit, our experts at National Tax Group can make sure all necessary materials are properly documented and presented to successfully earn your savings. Contact us today for a free assessment of your benefits and start saving money.
