Going green yields immediate tax savings.

• Author: Roman, Laura L.

Any organization has much to gain by purchasing more energy-efficient equipment and systems. Long-term savings result from reducing energy costs, and various long-term benefits accompany participating in environmental stewardship efforts.

What an organization might not be aware of, though, is how many tax incentives are available in the United States at the federal, state, and local levels to defray the costs of purchasing and installing more energy-efficient equipment and systems.

While incentives vary among states and municipalities, doszens of programs are available that reduce the initial costs of conservation efforts. Those programs encompass construction and design considerations for new buildings, as well as improvements to existing facilities.

Organizations operating in a variety of industries can capitalize on these incentives. A manufacturer may benefit from purchasing more efficient production equipment. A real estate company that owns and rents residential housing may benefit from installing new windows in its apartment units. Those windows may also reduce the strain on existing heating and air conditioning systems.

Installing rooftop solar panels may enable a health care clinic to reduce its natural gas use for water heating, while a professional services firm may realize substantial savings in electricity costs by installing new light fixtures in its offices.

General Classifications for incentives

Depending on an organization's circumstances, a variety of incentives may be available. Those incentives fit within one of the following five categories:

Gross income exclusions: A company can exclude from gross income part or all of incentive payments or grant funds it receives for qualified energy conservation projects. At the federal level, for example, Sec. 136 allows the exclusion of a subsidy provided by a public utility for the purchase or installation of any energy conversation measure. Such measures may include items that reduce consumption of electricity or natural gas, such as meters installed in customers' homes (Letter Ruling 201046013).

Tax credits: Each dollar offered for a tax credit reduces the total amount of business income subject to tax. Such credits include one for production of renewable electric energy (Sec. 45) and a 10% combined heat and power property (CHP) tax credit (Sec. 48).

Deduction in lieu of depreciation: Sec. 179D, the energy-efficient commercial building deduction, allows taxpayers to deduct the...