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IRS Revenue Procedure 2011-14 Energy efficiency and claiming the 179D deduction

The 179D tax deduction came about as part of the Energy Policy Act of 2005 (EPAct). Congress wanted to incentivize the utilization of energy-efficiency components in a building to one of the following parties:

1.The owner of the building
2.The tenant
3.The primary designer of an energy-efficient government building. (Architect, engineer, contractor etc.)

The deduction available is up to $.60 per sq./ft. for lighting, HVAC and building envelope, creating potential for $1.80 per sq./ft. if all three components qualify. These deductions are applicable to buildings that were either built or retrofitted after 12/31/2005.

Since EPAct came into effect, the IRS has provided interim guidance on EPAct deductions through several additional notices. IRS Notice 2006-52 describes in detail the rules and how to ensure a building qualifies if it was a new build or a retrofit. It requires the taxpayer to obtain certification that the property satisfies the energy efficiency requirements of 179D and specifies the software that must be used to calculate energy and power consumption. To further the cause, the IRS issued Notice 2008-40, which allowed a government building (non-taxpaying entity) to pass the deduction to the “primary designer” of the qualifying assets.

Until recently, taxpayers looking to claim the 179D deduction were limited by the three year statute of limitations for filing amended income tax returns for a particular tax year. That has changed with the issuance of Revenue Procedure 2011-14, which will allow some taxpayers to bypass this statute of limitations and claim this deduction all the way back to 1/1/2006 without filing one single amended income tax return. Taxpayers who wish to take the deduction without amending any returns will file a Form 3115 (Application for Change in Accounting Method) and will get to take the entire “catch up” deduction on the return that is being filed. This means that a taxpayer could potentially claim deductions from 2006-2010 (or 2011) all on one return and significantly reduce their tax burden, if not eliminate it altogether.

Deciding whether or not to amend returns or file for a Change in Accounting Method (Form 3115) is entirely dependent upon each taxpayers situation. If taxable income was higher in open years and therefore the taxpayer was in a higher tax bracket, it still may make sense to amend those returns. The impact of Revenue Procedure 2011-14 will also depend on whether or not any deductions have already been claimed or returns have been amended. A thorough analysis of each taxpayers scenario by an advisor experienced in 179D is advantageous to determining the best approach and claiming the maximum deduction allowed under the law.

Ways To Improve Energy Efficiency In Your Home

Heating and cooling bills account for over half of the monthly expenditure of American homeowners, when talking simply about fees associated with home ownership. This stems from a variety of causes, from the windows to poor insulation. The result is a home with an overactive HVAC system, drafts and other similar issues. Additionally, homeowners increase their carbon footprint due to the abundant use of energy to heat their home. Carbon dioxide, nitrous oxide and methane are expended with your HVAC system, which are attributed to global warming. Insulation can block some of these emissions, while reducing your electrical use can lower the rate of greenhouse gases as well. There are many ways that home owners can combat their energy use, so its important to create a budget to determine what you can afford and what will help your energy use the most in the long term. It can be expensive to make these changes to your home, but improving the energy efficiency in your home will not only reduce monthly expenditures, but increase the resale value of your home.

Windows and Doors

One of the biggest places that energy escapes is from the windows and doors, so its important to verify their status. If you live in an older house, chances are that the materials used during the building process are out of date and may simply require an upgrade. Look around the jamb and windowsill to determine whether the caulking may need a repair or inspect wooden frames for any warping, chips or other, more significant damage. Caulking is easy to repair, but more serious signs like condensation, frost on the inside of the windows and chips in the wood are more serious physical signs that you need new windows. Doors have a clearer cut sign; when you close the door if you can see any light coming from the outside into your home, its time to replace the door. Its either become damaged during its years of use or it was uninstalled properly. Lastly, if these items seem visually alright, you may simply want to feel the temperature near the questionable windows. For example, a window that feels frigid to stand in front of during the winter months is not energy efficient. And when that happens, an abundance of your homes energy is lost through these spaces.

Electronics

Every appliance that you own should be equipped with an energy-efficient tag or it needs to be replaced. Older models may be sturdy and reliable, but without the certification you may be spending too much on your energy bill. Its also important to unplug items like the toaster or your computer, when they are not in use. These items can increase your bills for no reason when they are plugged intot the wall. Its also important to not leave the refrigerator open for long periods of time, which make the air escape and the appliance work harder. Lastly, dont run the dishwasher until it is full, instead of just doing it one load at a time.

Insulation

One of the biggest places to lose energy is inefficient insulation. When properly installed, installation acts like a barrier between your home and the sun, keeping it cool in the summer. And during the winter months, it safely keeps the warmth inside your home. The result is a home with a constant, comfortable temperature. Talk with a professional insulation team to determine whether your home qualifies for an upgrade.