1. §179D EPAct and Tax Incentives Presented by: Ernst & Morris Consulting Group, Inc. & Energy Tax Savers, Inc.

2. Topics  EPAct(Section 179D) Available for Energy Efficient Building Projects:  Lighting  HVAC  Building Envelope  Alternative Energy Tax Incentives Solar, Geothermal, CHP  Bonus Depreciation

3. Energy Policy Act of 2005 (EPAct)  Extended through 12/31/13  Benefits available from 1/1/06 thru 12/31/13  Incentivized areas: Lighting HVAC Building envelope  Available for New Construction and Existing Buildings  Also available for tenant owned lease-hold improvements  Benefit available for Primary Designers on Government Projects

4. Chat Questions  Wal*Mart leases a space from Landlord. After 5 years in the space, Wal*Mart decides to upgrade to energy efficient lighting. Wal*Mart pays an electric installer to do the upgrade. Who gets the 179D tax deduction?  Avalon builds the nations most energy efficient 1000 unit garden apartment complex. Can they qualify for Section 179D?  Green Depot puts Solar Panels on their 1950’s(never been updated) warehouse. The panels reduce the buildings outside electrical needs to Zero. Can Green Depot take a Section 179D deduction?  General Motors installs energy efficient lighting in one of its manufacturing facilities. Can GM take advantage of Section 179D?

5. Important IRS Notice Rev. Proc. 2011-14  Taxpayers can now use 3115 process to catch up on all missed EPAct deductions Great for 2006/2007 new construction and retrofits Excellent for investor groups to avoid amended individual returns  Many property owners are combining prior and current projects for the $1.80 5

6. Who’s using EPAct? First MoversReasons Retailers & Supermarkets Energy is a major operating cost Centralized facilities’ management Distribution Centers Major growth market High economic return Lighting & Natural Gas Heater Combination Hotels Meet ASHRAE 2004 = Full EPAct Bi-level not required in guest rooms Industry has reorganized Parking Garages Large facilities drive large EPAct benefits Huge Category Industrial Facilities Large facilities drive large EPAct benefits Existing lighting is being phased out by law Lighting & Natural Gas Heater Combination Office Buildings LED’s Car Dealerships Large deductions for lighting and service bay heaters 32,000 dealers down to 18,000 dealers

7. What’s it Worth? Building LightingHVACEnvelopeTotal Sample Minimum Maximum Square Footage Deduction 50,000 $ 15,000 $ 30,000 $ 90,000 100,000 $ 30,000 $ 60,000 $ 180,000 250,000 $ 75,000 $ 150,000 $ 450,000 500,000 $ 150,000 $ 300,000 $ 900,000 750,000 $ 225,000 $ 450,000 $ 1,350,000 1,000,000 $ 300,000 $ 600,000 $ 1,800,000 *Note – with government buildings, the benefit goes to the primary designer

8. Chat Questions  How much did the Primary Designer pay for the new lighting system for a new public High School?  What was the Income Tax Liability for our Primary Designer Client that only designs K-12 schools in:  2006?  2007?  2008?  2009?  2010-13?  Do you have any A & E clients that might be interested?

9. Commercial Building Immediate Deductions  Stimulus Package emphasizes Energy Efficiency in Government Buildings  Architects/Engineers/Lighting Designers DOE goal to incentivize green design in government building sector  Benefits passed through to the primary designer of:  Federal  offices, military bases, court houses, post office, labs etc.  State  offices, transportation facilities, state universities, court houses etc.  County, city, town, village etc  offices, schools, town halls, police, fire, libraries etc.

10. What’s in it for Architects/Engineers/Lighting Designers?  Growth in this EPAct area for government building designers is exploding  Successful Design Niches: K-12 Public Schools State Universities and Colleges Military Bases Parking Garages Airports

11. Allocation of $120,000 Tax Deduction Government Buildings Only 4 Party Allocation Lighting Specifier $30,000 Engineer $30,000 Architect $30,000 Design & Build Contractor $30,000 3 Party Allocation Lighting Specifier $40,000 Engineer $40,000 Design & Build Contractor $40,000 2 Party Allocation Lighting Specifier $60,000 Design & Build Contractor $60,000 No Allocation Lighting Specifier $120,000

12. How do you Qualify? Mechanics Deductions based on improvements over ASHRAE 90.1 2001 Energy efficient improvements must be depreciable assets  Converts 39 year depreciation to current deduction Available for installations completed between 1/1/06 & 12/31/13  Can begin in prior years Deduction amounts:  Lesser of total cost or:  $1.80/sq.ft. Whole Building  $0.60/sq.ft. Individual Systems a. Lighting b. HVAC c. Building Envelope ASHRAE (American Society of Heating, Refrigerating and Air-Conditioning Engineers) HVAC (Heating, Ventilation & Air Conditioning)

13. 8 Ways to Capture Tax Deduction (1) Whole Building ($1.80/ft 2 ) – 50% Energy Cost Reduction below standard Permanent Rules partial deduction ($0.60/ft 2 ) (8) Interim Lighting Rules ($0.30/ft 2 -$0.60/ft 2 ) – 25% to 40% prescribed Light Power Density (LPD) reduction below standard Building Envelope LightingHVAC Alternative 1 (2) 16 2/3 % (3) 16 2/3 % (4) 16 2/3 % Alternative 2 (5) 10% (6) 20% (7) 20%

14. Chat Questions  What is the maximum potential tax deduction for:  100,000 sq.ft. lighting project for a new casino?  100,000 sq.ft. lighting project for a commercial office building?  100,000 sq.ft. lighting project for an IRS office building?  Who gets the Tax Deduction?  100,000 sq.ft. lighting project for a Red Cross office building?  100,000 sq.ft. lighting project for a commercial warehouse?

15. Where are the Benefits  Lighting, Lighting, Lighting  Lighting Controls  Specific Types of HVAC Geothermal Thermal Storage Central Chiller plants with small buildings(<150,000sq.ft.) in Campus  LEED Buildings

16. Interim Lighting Rules  Meet W/ft 2 targets  Add’l Requirements Bi-level Switching Meet ASHRAE 90.1 Requirements Meet IESNA minimum light levels % Improvement25%26%27%28%29%30%31%32%33%34%35%36%37%38%39%40% Tax Deduction $/sq.ft.0.300.320.340.360.380.400.420.440.460.480.500.520.540.560.580.60 LPD (Light Power Density) 2001 Standard LPD, W/ft 2 25% Improvement 40% Improvement Office1.30.9750.78 Manufacturing2.21.651.32 School/Library1.51.1250.90 Retail1.91.4251.14 Warehouse1.250% required, 0.60

17. Chat Questions  Does the room your sitting in have Bi-level Switching?  How?  What is the Watts/Sq.ft. of your Room?  If you are lit by 4 ft. fluorescent tubes assume 28 watts for each tube in your space. Some fixtures have two tubes, others 3 or 4.  How many tubes(lamps) are in your fixtures?  To measure sq.ft. count the ceiling tiles  Do you have 2’ x 4’ ceiling tiles or 2’ x 2’ ceiling tiles?

18. Definition of Bi-Level Switching  A room, as defined by floor to ceiling walls, must have at least two light levels other than “on and off”.  This can be met in a number of ways: Dimming ballasts create an infinite number of light levels 50% of lights in a room on one switch, 50% on another or 60/40, 70/30… Occupancy controls on separate lighting circuits Even lights on at least 2 separate circuit breakers would technically qualify  Exceptions Storerooms, Restrooms, Lobbies, Hotel & Motel Guestrooms, and Garages

19. Benefiting from ASHRAE 2004 & 2003 IECC 2001 Std. (W/ft 2 ) 25% Over 2001 40% Over 2001 2004 Std. (W/ft 2 ) 2004 % over 2001 Automotive Facility1.51.1250.9 40%X Convention Center1.41.050.841.214% Court House1.41.050.841.214% Bar Lounge/Leisure1.51.1250.91.313% Cafeteria/Fast Food1.81.351.081.422% Family Dining1.91.4251.141.616% Exercise Center1.41.050.84129%X Gymnasium1.71.2751.021.135%X Health Care Clinic1.61.20.96138%X Hospital1.61.20.961.225%X Hotel1.71.2751.02141%X Library1.51.1250.91.313% Manufacturing2.21.651.321.341%X Motel21.51.2150%X 2001 Std. (W/ft 2 ) 25% Over 2001 40% Over 2001 2004 Std. (W/ft 2 ) 2004 % over 2001 Movie Theater1.61.20.961.225%X Museum1.61.20.961.131%X Office1.30.9750.78123% Parking Garage0.30.2250.180.30% Theater1.51.1250.91.6-7% Police/Fire Station1.30.9750.78123% Post Office1.61.20.961.131%X Retail1.91.4251.141.521% School/University1.51.1250.91.220% Sports Arena1.51.1250.91.127%X Town Hall1.41.050.841.121% Transportation1.20.90.72117% Warehouse1.20.8 Workshop1.71.2751.021.418%

20. Commercial Energy Codes 2003 IECC ArkansasNew York ColoradoMontana ConnecticutNebraska West Virginia 2004/2006 IECC IllinoisNew Hampshire Rhode IslandPennsylvania MarylandKentucky South CarolinaGeorgia WisconsinKansas OklahomaNew Mexico UtahIdaho Iowa ASHRAE 04 VirginiaLouisiana MaineNew Jersey OhioNevada State Specific CaliforniaOregon FloridaVermont North CarolinaWashington Massachusetts

21. Federal Building Energy Code Standa rds  As of 12/31/2010 all states are required to have codes at ASHRAE 2004 or better Impacts new construction and major retrofits This is a big change for states at no or older energy codes States must certify they are at this level or justify why they are not

22. Chat Questions  Do you reside in one of the 35 states?  Do you have clients doing any new construction?  What type of Building?  Is it in a category where the building code automatically put them in the Watts/sq.ft. zone for tax deductions?

23. Major Lighting Bans Lighting TypeDate Effective Most Probe Start Metal HalidesJanuary 1, 2009Manufacturing banned T-12s¹July 1, 2010 Manufacturing banned Distribution now limited to ten per pack Incandescents²Beginning 2012-2014Ban on current efficiency levels beginning 2012 ¹ Residential is excluded from the ban, provided power factor is less than 0.90. ² Potential replacements 1)High efficiency incandescents 2)CFL’s 3)Induction 4)LEDs

24. Biggest EPAct Growth Area LED

25. Lighting Retrofit Economics (For Existing Buildings)  Energy Savings is usually the main driver  In some states, Utilities offer Rebates for energy efficient lighting Installations  Tax Savings is the newest opportunity  Demand Response is another potential income stream  Capitalizing on all the incentives can bring payback for projects to below 2 years and in some cases less than 1 year

26. Retrofit Math 100,000 sq.ft. Warehouse 250 Metal Halides replaced with HiBay Fluorescents  Cost of Project = $75,000 (Assumes $300/fixture installed) Annual Energy Savings = $24,461/yr  250 x (0.458 kW-0.234 kW) x 12 hrs/day x 7 day/wk x 52 wk/yr x $0.10/kWh Rebate = $24,600  This is a sample rebate, using LIPA’s rebates. Some areas have no rebate system others have larger rebates. Added PV of Tax Deduction = $13,461  40% combined tax rate, 8% discount rate, compared to 39 yr depreciation removed(expensed) in year 15  Payback = 1.5 Years  IRR = 58% Without rebate, Payback = 2.5 yrs, IRR = 37%

27. Chat Questions  Do you have clients doing Lighting retrofits?  If no, Do you have clients with lighting like this?  Should they be retrofitting?

28. What Tends to Qualify on the HVAC side? 1. Geothermal (Ground Source Heat Pumps) 2. Thermal Storage 3. High Efficiency VRF units in Rental Apartments/Dorms/Hotels 4. Centralized HVAC in Rental Apartments/Dorms/Hotels 5. Energy Recovery Ventilation 6. Demand Control Ventilation 7. Chillers in buildings < 150,000 sq ft 8. Direct fired heaters in no AC Industrial Spaces 9. VAV (variable air volume devices) in buildings <75,000 sq ft 10. Chilled Beam 11. Magnetic Bearing Chillers 12. Gas fired chillers combined with electric chillers to peak shave

29. Non-conditioned Energy Overview  In heated only warehouse, industrial and self storage spaces (non air conditioned spaces) lighting is the biggest energy user. -Typically lighting makes up 60-70% of building energy use with heating making up the 40-30% difference

30. Warehouse Heater & Efficient Lighting LocationSq.Ft.W/sq.ft.Heaters$/sq.ft.Tax Deduction Jacksonville, FL642,2190.693(1,850 MBH ea)$1.20/sq.ft.$770,663 Irving, TX701,2500.4020(400 MBH ea)$1.80/sq.ft.$1,262,250 S. Brunswick, NJ200,0000.754(1,200 MBH ea)$1.20/sq.ft.$240,000 Franklin, NJ140,0000.451(1,850 MBH) & 1(1,600 MBH)$1.80/sq.ft.$252,000 Middleton, PA61,0670.612(1,200 MBH ea)$1.20/sq.ft.$73,280 Bristol, PA273,0800.372(2,200 MBH) & 4(1,600 MBH) & 1(800 MBH)$1.80/sq.ft.$491,544 Bristol, PA60,0000.761(1,600 MBH) & 1(1,200 MBH)$1.20/sq.ft.$72,000 Edison, NJ43,1920.541(950 MBH)$1.20/sq.ft$51,830 Oxford, MA68,8000.761(950 MBH) & 1(800 MBH)$1.20/sq.ft.$82,560 Hauppauge, NY80,3240.631(3,200 MBH)$1.20/sq.ft$96,389 Memphis, TN231,3450.394(1,600 MBH ea) $1.80/sq.ft.$416,421 Houston, TX895,0000.451(1,200 MBH)$1.80/sq.ft.$1,611,000 St. Tammany Parish, LA852,0000.445(200 MBH ea) & 2(100 MBH) 1(400 MBH)$1.80/sq.ft.$1,533,600 Edison, NJ95,6540.2815(2 MBH ea)$1.80/sq.ft.$172,177 Atlanta, GA600,8140.4411 (200 MBH ea)$1.80/sq.ft.$1,081,465 Edison, NJ105,4030.331(1,600 MBH)$1.80/sq.ft.$189,725 Eagan, MN570,5670.442(600 MBH) & 2(400 MBH)$1.80/sq.ft.$1,027,020 Whippany, NJ292,4580.39Special System$1.80/sq.ft.$526,424 Joplin, MO146,9010.311 (1,000 MBH)$1.80/sq.ft.$264,422 Totals6,060,074 $10,214,770

31. For Non-Conditioned Buildings  Step 1: Put in energy efficient lighting at the EPAct level  Step 2: Put in an energy efficient heater  Step 3: Use excess deductions for your roof

32. Step 1: Lighting  The key is to reduce the wattage levels to the EPAct target levels.  This process will result in a large energy cost reduction.  Achieves large tax deductions at the 60 cent per square foot level.

33. Step 2: HVAC  Non-conditioned buildings Install very energy efficient heaters. Many clients utilize Cambridge direct fired heaters.

34. Step 3: Physical Shape  Pre-solar All worn and aged roofs need to be upgraded. Good time to consider added insulation Certain solar systems a white reflective roof Move rooftop equipment, including upgrade HVAC off of the roof Strategy: Use the lighting and HVAC tax upgrades (above) to drive large tax deductions for roof improvements.

35. New Construction Data Requirements  Project general information  Square footage  Lighting projects CAD drawings (.dwg or.dwf), Architectural & Electrical sets Fixture schedule

36. Retrofit Lighting Data Requirements  Project general information  Square footage of each space  Bi-level lighting confirmation  Invoices (both material & labor)  Fixture descriptions (model number, Lamp count, ballast type)  Fixture count (new and retained)  Foot candle of rooms *most efficient for Energy Team to work with contractor

37. Energy “Modeling” required for HVAC & Envelope  HVAC and Building Envelope Modeling required (IRS Approved) No partial deductions Almost exclusively new construction and  Geothermal  Thermal Storage LEED (Leadership in Energy & Environmental Design) certified

38. Chat Questions  Do you have clients building LEED buildings?  Putting in Geothermal?  Putting in Thermal Storage?

39. Understanding Energy Models  IRS has approved thirteen types of modeling software eQUEST, Trane Trace 700, Energy Plus, Carrier HAP, VisualDOE, EnergyGauge, DOE2.2, DOE2.1E & 2.1E- JJH, Owens Corning Commercial Energy Calculator, Green Building Studio, EnerSim, IES other submissions are in process  Important modern Energy management tool.  Currently required for all HVAC and building envelope deductions and for whole building lighting alternative.  In many jurisdictions, rebates are provided for all or substantial portions of modeling costs.

40. Best Opportunities  Architect & Engineering firms doing Government Projects  Large spaces - tax deduction is based on square footage  Cost segregation projects for new and/or retrofit construction (post 1/1/2006)  LEED Buildings (gold & platinum)  Owners of buildings > 50,000 sq. ft. investing in energy efficient lighting

41. CPA firms can Expand Service Offerings Commercial Building Owners Retailers Industrial Buildings Warehouses Office Buildings Primary Designers of Government Buildings Architects Engineers Lighting Designers Design & Build Firms

42. American Recovery and Reinvestment Act of 2009 Tax Credits & Grants in Lieu of Tax Credits Specified Energy Property Credit Termination DateApplicable Percentage of Eligible Cost Basis Large WindJan 1, 201330% Closed-Loop Biomass FacilityJan 1, 201430% Open-loop Biomass FacilityJan 1, 201430% Geothermal under IRC sec. 45Jan 1, 201430% Landfill Gas FacilityJan 1, 201430% Trash FacilityJan 1, 201430% Qualified Hydropower FacilityJan 1, 201430% Marine & HydrokineticJan 1, 201430% SolarJan 1, 201730% Geothermal under IRC sec. 48Jan 1, 201710%* Fuel CellsJan 1, 201730%** Micro turbinesJan 1, 201710%*** Combined Heat & PowerJan 1, 201710% Small WindJan 1, 201730% Geothermal Heat PumpsJan 1, 201710% *For the first time in U.S. Tax History 100% of the cost of an alternative energy project can be expensed for tax purposes for projects completed after September 8, 2010 and before December 31, 2011. *Also cash grants equivalent to the 30% and 10% credit amounts are available through December 31, 2011

43. What We Deliver  Pre-project EPAct Marketing Material  Complimentary Design Analysis  Complimentary Tax Benefit Assessment  Comprehensive EPAct Tax Package -Energy Reduction Plan (ETSI Software) -Building Energy Model (ETSI Reviewed) -Tax Deduction Calculation (ETSI Software) -Owners Manual, highlighting energy savings -Design Certification (ETSI Document Creation and Review) -Post-Implementation Inspection (ETSI Document Creation and Review) -Audit Assistance

44. 100% Bonus Depreciation  Placed in Service between 9/9/2010 and 12/31/2011  Tax Depreciation Schedules less than 20yrs Examples  Alternative Energy(Solar, Wind, Geothermal, etc.)  Outdoor Lighting not affixed to the building  Qualified leasehold improvements  Non structural interior improvements to non residential real property pursuant to a lease.  Building must be at least 3 years old  Original use must commence with taxpayer

45. Energy Tax Savers Inc. http://www.costsegandenergycom/ Ernst & Morris Consulting Group, Inc. 2190 Dallas Highway Marietta, Georgia 30064 1-800-267-8734 Jacob Goldman jacob.goldman@energytaxsavers.comjacob.goldman@energytaxsavers.com Michelle Arnold marnold@costseg.commarnold@costseg.com