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Slash Those Energy Costs! Here are some amazing ways to save money that are sure to make it easier for hotel owners, operators and engineers to sleep at night. Thursday, September 20, 2012 Lorraine Francis - AIA, LEED BD+C

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Discover ways hoteliers can catch up on lost sleep by taking advantage of federal and state tax incentives, rebates, and grants.  Although the thought of more paperwork, and the investment in time might seem like extra work, the added cost savings can add up quickly.

A case study from Carol Hayward, National Project Executive at Energy Design Service Systems, demonstrates the power behind tax incentives and the potential savings a hotel can achieve.

Hayward and her firm consulted with a 85,000 square foot hotel in California and helped them get over $450,000 in combined grants, utility rebates, and tax deductions.   

• $1.80 a square foot on the Federal tax deduction 179D
• .58 cents per square foot additional deduction from the State of California
• $1.78 a square foot utility rebates for lighting
• $100,000 grant

By the time federal and state tax deductions were applied, the hotel property yielded $4.16 a square foot plus the grant.

Some details on the ways to SAVE!

1. Energy Policy Act/179D Federal Tax Deductions for Hospitality

Section 179D of the Energy Policy Act of 2005 established a tax deduction of up to $1.80 per square foot for qualifying structures, including a retroactive deduction for existing facilities that meet specific requirements.  Despite this potentially significant benefit, though, a surprisingly small number of hotel owners and operators are aware of the deduction or how to go about obtaining it.

Summary on Section 179D:

• Amount of tax deduction is $.30 to $1.80 per square foot on qualifying property installed after December 31, 2005 to December 31, 2013.
• Property qualifying for this special deduction must be excluded from the general building account, which is depreciated over a longer life (generally 29 years) and consequently yielding a smaller current depreciable deduction.
• Energy saving types of property that qualify for this special deduction must be segregated from the general building account.
• A performance rating method (prm) must be conducted and certified.

2. State Tax Incentives & Utility Rebates

DSIRE is a comprehensive source of information on state, local, utility and federal incentives and policies that promote renewable energy and energy efficiency. Established in 1995 and funded by the U.S. Department of Energy. State rebates can be based on green building incentives, local city rebate programs, performance based programs or utility rebate programs among a few. Check out the database at www.dsireusa.org/ for a great starting point to understand the availability of state tax incentive for your property.

3. Grants

Grants can be a great source of funding your energy cost reduction projects. Although researching and writing a grant can be overwhelming, this process can be simplified with a knowledgeable grant consultant to steer you in the right direction and manage the paperwork. There is an abundance of free money for energy savings for hoteliers so you need to calculate this into your equation for total savings and energy cost reductions.

4. Increase Your Cash Flow With Cost Segregation

Another way hotels owners can generate significant tax savings is by managing the facility’s depreciable assets using cost segregation.

Cost segregation is the process of identifying shorter-life assets within your total real estate portfolio; reclassifying new or recently remodeled buildings to generate tax savings of up to $230,000 for every $1 million of property value.

Generally, these items include certain electrical and mechanical systems, decorative features, specialty fixtures, land improvements and more. By depreciating these items on the correct schedule, you can reduce your current taxes considerably while accelerating cash flow.

Left un-segregated, these assets are typically depreciated over a 39-year period, decades longer than they should be.  And since these costs are usually associated with new construction or acquisition, you’re often paying for that mistake from the very moment you come to own the property.

The IRS provides a simplified method for real estate owners to claim depreciation deductions that have gone unclaimed on earlier tax returns.  Fortunately, hotel owners can do more than realize tax savings moving forward – they can even recoup prior years’ tax savings, too, even if they are only now becoming aware of them.

Finding money left behind

The most effective way a hotel can find missed opportunities is to consult with a firm that specializes in energy tax credits, energy rebates, grants and knowing the current Federal, State and Local tax programs. Energy Design Service Systems is a great starting point, review their expertise at  www.edssenergy.com

Lorraine Francis, AIA, LEED AP BD C (lorraine@cadizcollaboration.com) is a partner and founder of Cadiz Collaboration, (www.cadizcollaboration.com), an award-winning, full service architecture, interior design and sustainability consultant firm in Costa Mesa, California. Recognized as an expert in hospitality design and sustainability, her experience encompasses design work with national brands as well as numerous independent properties throughout North America. She host a monthly teleseminar series HOTELS GREEN 44 with thought-leaders in the industry about best practices around sustainability and the hospitality sector. Lorraine is a registered architect in California and Arizona, and received her architecture degree from University of Colorado and also studied architecture abroad at Syracuse University in Florence Italy.