Equity Green is up and running! I am excited to join the world of green and become a part of the community that is making a difference. I am committed to delivering thoughtful commentary and content on green issues as it relates to real estate and development. I look forward to your comments and feedback...with that said...Let's Rock and Roll!
Clean Renewable Energy Bonds
This week the IRS announced that it is distributing $800 million to renewable energy projects in the form of a tax credit bond. These Clean Renewable Energy Bonds ("CREB") were established under the Energy Policy Act of 2005, which was signed into law on August 6, 2005. Earlier this year, the IRS took applications from state and local governmental entities and electricity co-ops...over $2.6 billion worth of CREB requests (700+ applications) were received! Of the over 600+ applications accepted, 434 of the projects relate to solar facilities (coming to a DMV near you!) and another 100 or so relate to wind facilities. It looks like our state and local governments are turning to green technologies!
What is a tax credit bond and how does it differ from a conventional bond? Well, typically conventional bonds have an interest component that is paid from the issuer (borrower of funds) to the bondholder (lender). However, these tax credit bonds are a little different but definitely cool. Instead of the issuer paying the bondholder interest, the federal government pays the bondholder a tax credit in lieu of the issuer making interest payments...and the bondholder can use the tax credit against their federal income tax liability. In essence, the issuer (our beloved state and local governments) is getting an INTEREST FREE loan to pursue their renewable energy projects!
The benefit to this whole deal is found in the interest-free component. Let's think about this...these CREB projects ranged in scale from $20,000 to $80 million...think about the interest paid on an $80 million note at a 5% interest rate. And CREB recipients receive these funds...INTEREST FREE! Good job Uncle Sam...however, there needs to be a similar initiative (Key Word: Interest Free) in the private sector!
Deduction vs. Credit
I must admit, Interest free loans are definitely cool...I wish I had one on my condo...however, I want to take a quick moment and talk about tax deductions versus tax credits. If anyone ever asks, "Do you want a $50 tax deduction or a $50 tax credit?" Take the credit! Download deduction_or_credit.xls I know that green revolution has started and is taking off, but if the government ever wanted to stimulate behavior in this arena, they would offer homebuilders, manufacturers and homeowners substantial tax incentives to build, buy and be green. Now, I know there are a few tax credits available...but the incentives should be larger and they should be made a permanent (if there is such a thing) fixture of our tax code. OK, enough said. Kudos to the IRS for going green!
Now, I want to take a moment and offer my condolences to the Kim family from San Francisco. Our prayers are with you as you go through this very tragic event.