Steeply increasing energy costs for building owners and tenants have generated a fundamental shift in all real-estate market segments. This shift is generating a major market opportunity that developers can capitalize on. Federal tax credits are available for commercial and mixed-use buildings that incorporate green elements and meet certain performance standards. These credits also apply to multi-unit and single-family residential new construction or remodeling projects that fit the high-performance building model.

  • Credit: Ryan Siphers Photography

With all the public, consumer and corporate interest in green building and the pressures of increased operational energy costs, it makes sense to generate a class of high-performance buildings that deliver federal tax credits to developers and significantly reduce energy consumption without increasing the cost of the building shell.

BENEFITS

A tax deduction of up to $1.80 per square foot for commercial buildings can be earned by exceeding the Washington, D.C.-based International Code Council’s International Energy Conservation Code 2004 Revision by 50 percent. The comparable residential tax benefit is $2,000 per residential unit. The Washington-based U.S. Department of Energy’s Energy Star certification is based on the IECC and currently is the only way that federal tax credits can be garnered in a building project.

The tax credit is available to the person or organization responsible for the construction costs on the project. Typically this is the developer or owner, though in the case of government-owned buildings, designers often are eligible to receive the tax credit. These credits are valid one time only and can be assigned or sold to a third party.

Essentially, the credit is available to encourage new construction and renovation projects to use significantly less than half the heating, cooling, ventilation, water-heating and interior- lighting energy of a comparable building that meets the Atlanta-based American Society of Heating, Refrigerating and Air-Conditioning Engineers Inc.’s Standard 90.1-2001, “Energy Standard For Buildings Except Low-Rise Residential Buildings.” Partial deductions of $0.60 per square foot also are available to projects that make a 16 2/3 percent reduction in energy through improvements to one of the following: building envelope, lighting, or heating and cooling system.

An interim lighting provision makes an allowance for $0.30 to $0.60 per square foot for reductions in lighting-power density from ASHRAE 90.1-2001 tabular values of 25 to 40 percent, respectively. These deductions are available for buildings or systems that went or will go into service between Jan. 1, 2006, and Dec. 31, 2008.

HIGH-PERFORMANCE BUILDINGS

Not all green buildings or green-building rating systems deliver on the promise of energy performance, which is necessary to earn federal tax credits. A demand for high-performance buildings is changing the way design and construction teams need to work together to deliver performance-based building results.

High-performance buildings are developed using a design-build strategy that incorporates tax-credit or IECC building- performance goals in the design charrette of the project. In the commercial-building segment, green buildings are highly sought after by large and small tenants alike. It has become a way for companies to show their concern for employee and environmental health.

  • Incorporating Energy Star and IECC requirements can and will deliver a project that achieves federal tax credit. It also will increase the certification level of most green-building rating systems by at least one level.

    Credit: Follansbee

    Incorporating Energy Star and IECC requirements can and will deliver a project that achieves federal tax credit. It also will increase the certification level of most green-building rating systems by at least one level.

Currently, there is a great deal of confusion about the definition of a green building. Buildings that claim to be green vary widely. They range from those incorporating some environmentally sensitive or recycled products to high-performance buildings that have earned an Energy Star certification through third-party testing. Without any real definition of the term “green,” it is up to the consumer to verify any green-building claim. An Energy Star label is a sure way to identify a high-performance building.

Incorporating Energy Star and IECC requirements can and will deliver a project that achieves federal tax credit. It also will increase the certification level of most green- building rating systems by at least one level. IECC is more stringent than the current ASHRAE codes, which is why DOE now is working with ASHRAE to increase its ener- gy efficiency requirements by 30 percent.

Not all green-building rating systems benchmark their energy requirements to a nationally or internationally accepted building standard; many of these systems rely on exceeding local code by 20 or 30 percent. If the local energy code is not thoroughly thought out or rigorous, these systems can neither capture nor generate the substantial increase in performance required to receive federal tax benefits.

CREDIT WITH METAL

There are a number of building prod- ucts or systems that can deliver additional tax credits themselves in the development of a high-performance building project, such as cool and/or metal roofing products and renewable-energy systems.

Homeowners who install metal roofs with pigmented coatings that meet Energy Star requirements are eligible for a tax credit of up to $500 through Congress’ Energy Policy Act of 2005. Energy Star-labeled metal roof systems have at least 65 percent solar reflectance for low-slope roofing and 25 percent solar reflectance for steep-slope roofing.

Energy Star, the Portland, Ore.-based Green Building Initiative’s Green Globes rating system and the Washington-based U.S. Green Building Council’s LEED system recognize on-site renewable-energy generation for reducing a building’s energy consumption, and each program rates this contribution differently. Renewable-energy systems offer federal and some local tax credits and incentives when incorporated into a project.

For example, commercial buildings can earn federal tax credits for qualified solarwater- heating and photovoltaic systems, as well as for certain solar-lighting systems. The equipment must use solar energy to generate electricity or to heat, cool or provide hot water to a structure. It should be noted that tube systems and passive solar are not eligible for this benefit. The credit is for 30 percent of the cost of the system with a maximum benefit of $2,000 for PV systems and $2,000 for solar-water-heating systems each tax year.

Projects that use standing-seam metal mansard roofs, sloped roofs, or siding with appropriate solar orientation and angles can be used to install high-performance PV or solar-thermal systems, saving additional racking and installation costs. Renewable- energy systems can offer reverse metering, in addition to federal tax credits. They also can reduce the operational cost of common area utilities, which increases the net present value of the building while serving as a visible testament to the fact that the building is, in fact, a green building.

George Sullivan is the principal and chief executive officer of Eco Smart Building, a Chicago-based design/build consulting practice that specializes in building programming, development and construction. He can be reached at gds@ecosmartbuilding.com.

The following links will provide additional information about the 2008 federal tax credits and techniques to help earn them: