Taxpayers may claim this deduction under Section 179D(a) as long as the equipment/system installed lowers the energy usage to a specific threshold. The equipment/system must be certified so that it meets the requirements of the IRC to obtain the deduction. CCR will provide the certification so that owners and their architects and engineers can demonstrate that the property meets these stringent requirements.

For example, a recently completed IVI assignment consisted of a client installing a replacement chiller for a cost of $400,000, which was inclusive of design fees that are also deductible. IVI’s study documented the energy savings and appropriate costs, which amounted to the client receiving a tax benefit of $84,000.

For municipal properties, designers-of-record or the person who is primarily responsible for designing the system, may claim this deduction as long as the equipment/system installed lowers the power usage. This facet of the legislation was to encourage the design community to develop efficient solutions for schools, municipal buildings, and other non-for-profit owned structures. IVI will provide the independent certification to assist the designers to take advantage of this unique deduction. Such certification can not be completed by either the designers themselves or their accountants.

What Types of Properties Warrant a Replacement Reserve Study?

• Condominiums, Cooperatives & Other CIRAs – To equitably assess owners without imposing special assessments and to protect board members from personal liability.
• Investment Properties – Properties owned by pension funds, REITS, trusts, insurance companies, real estate partnerships, and individual investors, etc.
• Corporate Properties – Corporate ownership of multiple facilities: banks, branch offices and distribution facilities, restaurants and rental chains, shopping centers, hotels, supermarkets, etc.
• Private Schools & Universities – Not-for-profit institutions are still in a competitive marketplace for tuition dollars. The maintenance, repair, and updating of facilities reflects the institution’s commitment to its students, and the board’s financial authority and priorities.

How Does IVI Conduct a Replacement Reserve Study?
IVI identifies and quantifies all components, equipment, and systems that have recurring life cycles. Historical repairs and replacements, and the costs incurred for same, are thoroughly researched. IVI then opines on the items’ remaining useful lives as to when partial or full replacement is required. The appropriate reserve account balance and required annual contributions are then determined to prevent running a negative account balance for any year within the reserve term. A typical study will contain projections for 20 years.

We work closely with ownership, property management, accountants, and appraisers to differentiate between items classified as operating expenses and capital expenditures. When determining future expenditures and budgeting for same, sensitivity analyses are prepared for different rates of inflation, investment yield rates, annual contributions, and holding periods. There are no surprises. A draft report is submitted and thoroughly discussed amongst the parties.