It seems like you can’t talk about Michigan construction without discussing the impact of the “green” building trend. Clients in the residential and commercial sectors are continuing to express interest in sustainable building materials and processes.
The benefits to building green extend past helping the environment; in addition to daily savings due to energy-efficient appliances and materials, there are some major tax advantages that are also enticing.
The benefits of building green can be enjoyed by clients and builders alike.
As tax season approaches, here’s what you need to know.
Federal Residential Tax Credits
The current tax credits for Residential Energy Efficiency (Equipment Tax Credits for Primary Residences), in addition to the tax credit for builders of energy-efficient homes, expired on December 31, 2021. Any extension or renewal of these credits is still pending approved legislation. The tax credits for Residential Renewable Energy Products are still effective through December 31, 2023.
Tax credits for residential energy efficiency and those for builders of energy-efficient homes were extended retroactively, through December 31, 2021, meaning you can still save on last year’s taxes.
Credits for Your Clients
The tax credits for residential renewable energy products apply to:
- Air Source Heat Pumps ($300 tax credit)
- Central Air Conditioning ($300 tax credit)
- Gas, Propane, or Oil Hot Water Boiler ($150 tax credit)
- Gas, Propane, or Oil Furnaces and Fans ($150 tax credit)
- Water Heaters (non-solar) ($300 tax credit)
- Advanced Main Air Circulating Fan ($50 tax credit)
- Biomass Stoves ($300 tax credit)
- Insulation (10% of cost, up to $500 tax credit)
- Roofs - Metal & Asphalt (10% of cost, up to $500 tax credit)
- Windows, Doors & Skylights (10% of cost, up to $500 tax credit; windows capped at $200 tax credit)
Residential Renewable Energy Tax Credits
Under the Consolidated Appropriations Act of 2021, the renewable energy tax credits for fuel cells, small wind turbines, and geothermal heat pumps are now credited equally to solar energy systems.
Tax Credit:
- 30% for systems placed in service by 12/31/2019
- 26% for systems placed in service after 12/31/2019 and before 01/01/2023
- 22% for systems placed in service after 12/31/2022 and before 01/01/2024
These include:
- Geothermal Heat Pumps
- Small Residential Wind Turbines
- Solar Energy Systems
- Fuel Cells
- Biomass Fuel Stoves
Credits for Your Company
The Federal Energy Policy Act of 2005 created tax credits of up to $2,000 for the builders of new energy-efficient homes. This tax credit is available for homes built or manufactured in the United States between January 1, 2018, and December 31, 2021.
Homebuilders become eligible for the $2,000 tax credit for a new energy-efficient home that achieves 50% energy savings for heating and cooling over the 2006 International Energy Conservation Code (IECC) and supplements. At least 20% of the energy savings has to come from building envelope improvements. This credit also applies to contractors of manufactured homes conforming to Federal Manufactured Home Construction and Safety Standards and meeting the same energy efficiency requirements.
There is also a $1,000 tax credit available to the producer of a new manufactured home conforming to Federal Manufactured Home Construction and Safety Standards and achieving 30% energy savings for heating and cooling over the 2006 IECC and supplements. At least 33% of the savings had to come from building envelope improvements.
Federal Commercial Tax Credits
Tax deductions for energy-efficient commercial buildings allowed under Section 179D of the Internal Revenue Code were made permanent under the Consolidated Appropriations Act of 2021.
A tax deduction of up to $1.80 per square foot is available to owners or designers of commercial buildings or systems that demonstrate a 50% reduction in energy usage accomplished through improvements to:
- Heating
- Cooling
- Ventilation
- Hot water
- Interior lighting systems
Partial deductions of up to $.60 per square foot can be taken for qualifying measures.
Advising clients on all of the energy savings they’ll enjoy continues into tax season - and make sure that your company is reaping all of the available benefits as well.
