Before the improvements at the Fomo Products Inc. headquarters, if you crawled above the drop ceiling, you could see daylight through cracks between the roof and walls. By using spray foam insulation which the company manufactures along with installing new windows, lighting and HVAC systems, Ron Kozak worked to seal the company’s energy leaks.
During the green retrofitting, a contractor mentioned that Fomo could reap benefits beyond utility bill savings. The company could also get an immediate payback.
So Kozak, the executive vice president and chief financial officer of the 77-employee company, started a quest to learn more about this Energy Efficient Commercial Building Deduction, part of the Energy Policy Act of 2005. Under it, companies that install energy-efficient insulation, lighting or HVAC systems and reduce their energy costs by at least 50 percent when compared to a reference building can claim a maximum tax deduction of $1.80 per square foot.
Kozak understood that much. But he wasn’t sure who to go to.
Though most LEED-certified architects should be able to point you toward a certified engineer who can evaluate your building, Kozak didn’t find one until he reached out to his accountant, Alex Bagne.
“What you want to do is to contact first your tax preparer to see if they are aware of any engineers that are certified to do this study,” Kozak says. “And if not, contact the state society of engineers.”
Bagne, senior manager of tax services at Bober Markey Fedorovich, recommends doing this as early in your improvement planning process as possible.
“Bring that person in sooner than later because quite often you’ll run into a situation where the energy-efficiency savings are like 45 percent when compared to a standard building, and if they could just get it up a little higher to that 50 percent threshold, the tax incentive would be significantly more,” Bagne says. “If they could model that out from the get-go, they could make a much more informed decision about the quantity of energy-efficient building materials that they use.”
The original incentive for new green construction or remodeling completed since 2006 expired in 2007, but it’s been extended until 2013. If you’ve recently completed a project and are unsure if it qualifies for the deduction, some firms like Bober Markey Fedorovich will conduct free preliminary reviews to estimate your energy efficiency.
But even if the economy has cramped your plans of renovations in the near future, the incentive is a good excuse to rethink that. For example, that preliminary review or a similar evaluation by a green builder could reveal a few easy fixes to make you greener. Bagne, who attributes 30 percent of operating costs to utility bills, calls that a no-brainer.
Still worried about the higher initial cost of that efficient HVAC system or those LED light bulbs? That’s the whole point of the incentive.
“The [tax deduction] not only helps with deferring the cost, but it helps immediately,” Kozak says. “That does help a lot, cash-flow-wise.”
Then, of course, there’s the long-term benefit. Fomo, for example, is estimating a 15 percent savings.
“And that can be substantial when you’re talking close to a quarter of a million dollars total energy costs per year here at our operations,” Kozak says.
He cites a payback period of about 18 to 36 months.
“After you’ve gotten to that payback period, everything from there will be profit,” he says.
So after you improve your building, you can focus on building your business.
“It makes it very easy to want to save the planet and to do the right thing with energy consumption,” Kozak says. “When you have all that savings involved, it makes it very easy to jump on that bandwagon.”
How to be green
It started when gas hit $4 per gallon.
“It was a trigger to get people to start thinking differently about what the future might be,” says Don Taylor, president and CEO of Welty Building Co. LLC, a construction management firm increasing its green focus. “When you’re paying $4 a gallon for gas, you start spending a lot of time trying to figure out how can I use less gas.”
His job is to help clients answer that question and maximize savings in the three areas evaluated for the tax deduction: lighting, HVAC systems and the building envelope, or insulation.
“It might make more sense to invest in one area over another,” he says.
Ron Kozak, EVP and CFO of Fomo Products Inc., may be biased because Fomo manufactures spray foam insulation but he suggests starting there.
“The HVAC [specialist] might recommend a much smaller heating unit now that you’ve sealed up the airflow into your building,” Kozak says.
Taylor suggests additional easy green fixes.
“One simple way to make a building greener is to install energy-efficient light fixtures and motion-sensitive switches,” says Taylor, emphasizing automated controls whenever possible so your building responds to occupancy rather than timers.
“When you start to show first cost versus what it’s going to cost you to operate it forever, it starts to make sense to people,” he says.
How to reach: Welty Building Co. LLC, (330) 867-2400 or www.thinkwelty.com