April 8, 2022
Tax departments are being challenged (and rewarded) to contribute to their company’s Environmental, Social, and Governance (ESG) commitment. Environmental Sustainability is an important ESG metric. Certain building materials and methods can achieve environmental sustainability while earning cash tax incentives.
Drywall accounts for over 20% of the waste in a construction landfill. Drywall partition systems that can be removed, relocated, and reused can sustain the lifecycle of drywall. Under the proper facts and circumstances, the material and installation costs of these drywall partition systems may be eligible for accelerated depreciation deductions. One example is a “zip type partition” that makes it possible to remove, relocate and reuse standard commercial construction drywall partitions.
A 2014 Private Letter Ruling concluded that a taxpayer’s zip type partitions are considered personal property for tax purposes, affording the taxpayer to apply a 5-year recovery period to the asset that accelerates the asset’s depreciation deduction – and potentially for immediate bonus depreciation deductions.
A PLR is a written statement issued to a taxpayer that applies tax laws to the taxpayer’s specific set of facts. In the case of zip type partitions, the conclusion in the PLR suggests that this taxpayer would have at least a “more likely than not” chance of success should the item be audited. Taxpayers should seek advice from a tax professional to determine how the tax law may apply to their facts.
There are other tax incentives available that encourage environmental sustainability building practice that we will cover in future posts. The § 179D Energy Deduction allows for up to $1.80 per square foot through energy efficient lighting, HVAC and building envelope. The § 45L Energy Credit allows for up to $2,000 per residential unit through energy efficient mechanical and insulation. The § 45Q Carbon Capture & Sequestration Credit allows for up to $50 per metric ton of carbon captured.
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