By Margaret A. Moore
In todays economic climate, does it make sense to invest in your self-storage buildings by making green improvements? Potential savings on energy costs over time make the idea of spending now more attractive, though its hard to project exactly what your future savings will be.
However, theres another reason to make energy-efficient improvements to your self-storage facility. Thanks to §179D of the Energy Policy Act of 2005, building owners may be eligible for tax deductions for implementing energy-efficiency components in commercial buildings, including self-storage. These deductions are applicable to buildings that were either built or retrofitted after Dec. 31, 2005, and must be certified by a qualified third party.
While the building envelope is a great place to start when considering energy-efficiency improvements that qualify under §179D, it can also be tricky. Qualifying improvements to the building envelope entitle taxpayers to $.60 per square foot. The recent issuance of Revenue Procedure 2011-14 will allow some taxpayers to claim this deduction all the way back to Jan. 1, 2006, without filing one single amended income-tax return. This means a taxpayer could catch up by potentially claiming deductions from 2006-2010 (or 2011) all on one return and significantly reducing his tax burden, if not eliminate it altogether.
Regulating Air Flow
With energy savings and §179D deductions as incentives, building owners and tenants can look at various improvements to the building envelope to discover maximum benefits. Most self-storage facilities are of one of two typesa multi-story building that usually has some type of ventilation or even HVAC, or a single-story, garage-type with individual doors on each unit. This second type usually has no HVAC system. For the multi-story building, air-barrier systems are designed to block unwanted air movement through the building envelope and may be an option.
According to the U.S. Department of Energy, air leakage through the building envelope is responsible for up to 40 percent of heating and cooling energy costs. An air-barrier system can have a major impact on the energy consumption in the building, as well as potentially qualifying for the §179D deduction.
Typically, multi-story storage facilities have few windows, and single-story buildings relegate windows to the office area. Window glazing or tinting is another viable alternative to qualify for the §179D deduction, as well as saving on future energy costs. Low emissivity (Low-E) coating on glazing or glass windows controls heat transfer, usually resulting in a 30 percent to 50 percent reduction in energy loss.
According to the U.S. Department of Energy, Low-E coatings can be applied to the outside pane of glass to reduce heat coming into the building, and applied to the inside pane of glass to help retain heat in the building in colder climates. Some Low-E coatings can be applied to existing windows as retrofits, which is a fairly inexpensive way to not only save on energy consumption, but also potentially qualify for the §179D deduction.
Making Other Improvements
Additional energy-efficiency improvements to the building envelope include green- and cool-roof systems, insulation and sealant systems, insulated exterior cladding and deck coating and membranes. Enlisting the aid of qualified professionals to coordinate your green-building improvements can not only pinpoint the most effective building envelope improvements to make initially, but should result in a cohesive plan to ensure you receive the maximum energy savings and tax benefit from your capital expenditure.
For self-storage facilities, the most opportune strategies will be in lighting, and possibly HVAC. Taxpayers in a position to consider energy-efficient upgrades to HVAC and lighting systems as well could be eligible for a total of $1.80 per square foot in §179D deductions. Claiming tax deductions in exchange for spending on energy-efficiency improvements can make a difference by lowering your operating expenses and energy costs for years to come.
In addition to §179D tax deductions, IRS rulings and procedures make it possible to realize significant tax savings through applying correct and appropriate class life to real property. You may even be able to fund your energy-efficiency improvements without going to the bank.
Often, depreciation opportunities are missed and there are usually significant five- and 15-year assets that have been classified as 39-year assets. The IRS allows the property owner to go back in time to pick up that missed depreciation. Any building built or acquired in 1987 or later may qualify for the valuable tax savings a review might yield. A preliminary review may indicate youre eligible to save taxes and add thousands to your bottom line.
Margaret Marky A. Moore is CEO and founder of Capital Review Group, a Phoenix-based consulting firm. She has extensive experience in building engineering, depreciation analysis and capital equipment finance, and has been a nationally featured speaker on energy efficiency and commercial depreciation. Shes a certified sustainable building advisor and certified LEED AP. For more information, visit www.capitalreviewgroup.com.
For more information on §179D of the Energy Policy Act of 2005 and Revenue Procedure 2011-14, visit http://www.capitalreviewgroup.com/energy-certification/certification-179d/ and http://www.capitalreviewgroup.com/sustainability/irs-revenue-procedure-2011-14-claiming-179d-deductions-without-amending-tax-returns/.
