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Client Alert: Incentives for the Real Estate Industry in Recent Energy Legislation

11.01.08

Real estate projects should benefit from recently introduced or extended financial incentives for investments in energy efficient buildings and alternative energies.  Pennsylvania, New Jersey and the federal government enacted legislation that supports these investments through additional financing alternatives and tax subsidies.  The discussion below provides a brief summary of some relevant parts of the legislation.  Currently, there are active investors who will invest in energy improvements in return for a pass through of the tax credits available for these projects.

Pennsylvania

In Pennsylvania, the “Alternative Energy Investment Act of 2008” authorizes up to $650 million of incentives that, once implemented, will include:

·        $100 million in loans, grants, reimbursements, and rebates for small businesses (100 or fewer employees) and home consumer energy conservation projects  (limited to 25% of installed cost)

·        $25 million in grants and loans to building owners for projects that meet energy performance standards to be outlined in upcoming regulations

·        $165 million for grants and loans for clean energy projects and alternative energy projects, other than solar

·        $100 million in loans, grants, reimbursements, and rebates for small business and home solar energy projects (limited to 35% of installed cost)

·        $50 million in state production tax credits for alternative energy projects (limited to 15% of investment cost and an annual maximum credit of $1 million per taxpayer) 

 

Federal Government

Federal incentives include:

  • Energy efficient commercial buildings tax deduction which allows a deduction of up to $1.80/sq ft for the cost of energy efficient property installed in buildings that achieve a 50% energy savings target
  • 30% investment tax credit for solar energy property, qualified fuel cell property, and qualified small wind property
  • Tax credit for contractors for the construction of energy efficient new homes
  • Bond program for green buildings and sustainable design
  • 10% investment tax credit for combined heat and power systems
  • AMT reduction for the solar, fuel cell, and heat and power investment tax credits, among others, and
  • Accelerated depreciation for smart meters and smart grid systems.

New Jersey

New Jersey provides financial incentives through, among other things:

·        A property tax exemption for renewable energy systems used to meet on-site electricity, heating, cooling, or general energy needs

·        A sales tax exemption for solar energy devices

·        Rebates for energy efficient appliances

·        Rebates for certain on-site renewable energy systems and combined heat and power systems, and

·        A renewable energy-trading program available to all solar owners with grid connected generators.

Many New Jersey property owners have found that the combination of a federal tax credit and state rebate have been highly cost advantageous with respect to certain classes of buildings such as low rise residential.

The State programs have limited allocations.  There is an advantage to applying early in 2009 for benefits.

This is only a summary of the incentives that are available.  Please feel free to call Larry Arem (215 569 4142)  of the Klehr Harrison tax department if you would like to discuss these incentives and their impact on you, including obtaining investor funds.
 

CIRCULAR 230 NOTICE.  Any advice expressed above as to tax matters was neither written nor intended by the sender or Klehr, Harrison, Harvey, Branzburg & Ellers LLP to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.  The recipient may not and should not rely upon any advice expressed above for any purpose and should seek advice based on the recipient's particular circumstances from an independent tax advisor.