Energy-efficient real estate is becoming increasingly popular as people become more aware of their environmental impact. Purchasing energy-efficient real estate can provide major tax advantages in addition to the environmental advantages. We will discuss these tax benefits as well as the benefits of investing in energy-efficient houses in this blog post.

1. Tax Credits and Deductions

The availability of tax credits and deductions is one of the biggest tax benefits of investing in energy-efficient real estate buildings. The Energy Policy Act of 2005 and the Energy Improvement and Extension Act of 2008 provide the federal government with a number of tax incentives for energy-efficient structures.

The Energy Investment Tax Credit is one of the most important tax breaks (ITC). A credit of up to 26% of the total cost of energy-efficient upgrades done to a property, such as solar panels, geothermal systems, and wind turbines, may be claimed by the property owner. Both residential and commercial properties are eligible for the ITC.

The Energy-Efficient Commercial Building Deduction, sometimes referred to as the Section 179D deduction, is another tax incentive. Owners of commercial properties may deduct up to $1.80 per square foot of energy-efficient upgrades completed as a result of this deduction. The property must fulfill specific energy efficiency requirements, such as those established by the ENERGY STAR program run by the Environmental Protection Agency, in order to be eligible for this deduction.

2. Increased Property Value

Making an investment in energy-efficient real estate can also raise the value of your home. Since they provide lower energy costs, healthier interior conditions, and a smaller carbon impact, energy-efficient properties are becoming more and more appealing to tenants and buyers. Energy-efficient properties may see a boost in rental and sale prices as a result of this increased demand, giving owners a sizable return on their investment.

3. Lower Operating Costs

Lower operational costs are another benefit that energy-efficient real estate offers to property owners. Property owners can drastically lower their energy costs by introducing energy-efficient technologies like LED lighting, smart thermostats, and energy-efficient appliances. Reduced running expenses translate into increased profits for property owners, which can then be put back into the asset or used to settle debt.

4. Tax Benefits for Green Buildings

Via its Green Building Tax Incentive program, the federal government provides tax advantages for environmentally friendly structures. Property owners who design and build structures that adhere to strict energy efficiency and environmental requirements, such as those established by the Leadership in Energy and Environmental Design (LEED) certification program, are eligible for tax credits under this program.

The property must meet specific requirements, such as consuming less energy than a conventional building by at least 50%, in order to be eligible for these tax incentives. Tax deductions of up to $1.80 per square foot of the total floor area of the building are available to property owners.

5. Depreciation Benefits

While buying energy-efficient real estate, property owners might profit from depreciation advantages. Property owners can deduct the cost of their assets through depreciation over a predetermined time frame, usually 27.5 years for residential buildings and 39 years for commercial properties. But, property owners may be able to speed up this depreciation by investing in energy-efficient buildings thanks to the Modified Accelerated Cost Recovery Scheme (MACRS).

According to the type of improvement, MACRS enables property owners to amortize the cost of energy-efficient upgrades over a shorter term, usually 5 or 15 years. For property owners, this expedited depreciation can result in significant tax savings.

For property owners, purchasing energy-efficient real estate can result in significant tax benefits. For property owners, investing in energy-efficient properties can yield a sizable return on investment thanks to tax breaks and deductions, as well as higher property value and lower running costs. A more sustainable future can be achieved by investing in energy-efficient houses and lowering your carbon footprint.

Hence, if you’re thinking about buying real estate, it’s wise to think about the tax benefits of buying energy-efficient houses. Investing in energy-efficient properties can be a wise financial move that also supports a more sustainable future thanks to tax advantages, the possibility for greater property value, and decreased running expenses.

It’s crucial to keep in mind that deciphering the tax law may be challenging, so it’s always a good idea to speak with a tax expert to make sure you’re maximizing all of your tax benefits. Energy-efficient real estate purchases can be successful and long-lasting investments for your future if you follow the right advice.

F2H Capital Group is a debt advisory firm specializing in negotiating the best terms for your commercial real estate projects. The company offers a range of financial products and services, including fixed loans, bridge loans, and construction loans across all asset types. Please contact us for any of your financing needs.