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"Green" Federal Funding Programs Impacted

We're getting a lot of questions about how businesses can benefit from "green" provisions in the stimulus bill. Our Environmental Management Assistance Program team has identified several noteworthy items:

Modified Accelerated Cost-Recovery System (MACRS)

This accelerated depreciation schedule covers a variety of renewable energy technologies that have five year MACRS schedules (solar PV and solar thermal, fuel cells and micro turbines, geothermal electric, direct use geothermal and geothermal heat pumps, small wind, and combined heat and power), and some biomass properties that have seven year MACRS schedules. For details on MACRS review the Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562.

Bonus Depreciation

The federal Economic Stimulus Act of 2008, enacted in February 2008, included a 50% bonus depreciation provision for eligible renewable-energy systems acquired and placed in service in 2008. This provision was extended (retroactively to the entire 2009 tax year) under the same terms by The American Recovery and Reinvestment Act of 2009 enacted in February 2009.

To qualify for bonus depreciation, a project must satisfy these criteria:

The property must have a recovery period of 20 years or less under normal federal tax depreciation rules;
The original use of the property must commence with the taxpayer claiming the deduction;
The property generally must have been acquired during 2008 or 2009; and
The property must have been placed in service during 2008 or 2009 (or, in certain limited cases, in 2010).

If the property meets these requirements, the owner is entitled to deduct 50% of the adjusted cost basis in the first year (2008 or 2009) and the remaining 50% along the ordinary depreciation schedule. Refer to the IRS guidance document for bonus depreciation for details.

Energy Efficient Commercial Building Tax Deduction

Owners of new and existing buildings can receive $0.30 - %1.80 per square foot for energy efficiency upgrades to the Lights, HVAC system, building envelop, and the hot water system.

http://www.efficientbuildings.org/

http://www.energytaxincentives.org/uploaded_files/irs_notice2008-40.pdf

Corporate Energy Investment Tax Credit (ITC)

The corporate energy investment tax credit has been extended until 2016 for solar, fuel cells, and small wind: 30%, geothermal, micro turbines, and combined heat and power: 10%. Maximum incentive amounts apply depending on the technology. Small wind and solar projects are not subject to an incentive cap. Company’s eligible for this tax credit may elect to take a grant from the U.S. Treasury Dept equal to the tax credit instead.

Renewable Energy Production Tax Credit (PTC)

Commercial and Industrial entities can receive a tax credit for the production of renewable electricity. The size of the credit depends on the technology: 2.1 cents per kWh for wind, geothermal, closed-loop biomass, 1.0 cents per kWh for other eligible technologies. The tax credit applies for the first 10 years of operation.

Changes as of March 16, 2009

President Obama and Secretary Geithner announced new provisions to the American Recovery Reinvestment Act of 2009 on March 16. Among other things, the bill makes major changes to US Small Business Administration (SBA) lending and investment programs that will help small businesses.

As of April 16, we heard that SBA will be months late in issuing many of these regulations.

The Treasury Department will also commit up to $15 billion to help unlock the frozen credit markets by purchasing small business loan securities to free up more capital to jumpstart lending for small business owners.

We’ve talked with our partners at SBA and here’s what small business owners need to know with regards to the loan programs:

90 Percent Guarantee

The bill allows SBA to temporarily raise guarantees on its 7(a) loan program to as much as 90 percent for some loans through calendar year 2009, or until the funds are exhausted. Increasing the SBA guarantee percentage will provide banks with the greater confidence they need to extend credit during the current recession and make more capital available to small business owners.At present, SBA can guarantee loans up to 85 percent on loans up to $150,000, and up to 75 percent on loans greater than $150,000. The 50 percent guarantee on SBA Express loans would remain unchanged.

Read SBA’s press release

Fees for Borrowers Eliminated

The bill also temporarily eliminates fees for borrowers on SBA 7(a) loans and for both borrowers and lenders on 504 Certified Development Company loans, through calendar year 2009, or until the funds are exhausted. This will mean more capital available to small businesses at a lower cost. The fee elimination is retroactive to February 17, the day the Recovery Act was signed. SBA is developing a mechanism for refunding fees paid on loans since then.

Read SBA’s press release

Business Stabilization Loans

The bill creates a new SBA loan program to provide deferred-payment loans of up to $35,000 to viable small businesses that need the money to make payments on an existing, qualifying loan for up to six months. These loans will be 100 percent guaranteed by SBA. Repayment would not have to begin until 12 months after the loan is fully disbursed. The bill provides $255 million for this new program. These loans will help ensure that small businesses have time to re-focus their business plans in order to succeed in the long run.

Microloans

The bill expands SBA’s Microloan program, which provides small loans (up to $35,000) paired with technical assistance to start-up, newly established or growing small businesses. The bill provides funding to increase loans from SBA to participating microlenders by $50 million through September 30, 2010, and adds $24 million in grants to provide technical assistance to borrowers. Historically, these loans reach low-income individuals, women and minorities in both rural and urban areas. Expanding this program through the stimulus bill will help ensure these entrepreneurs are not left behind in the credit crunch.

Refinancing

The bill also gives SBA the power to use the 504 Certified Development Company program to refinance existing loans for fixed assets, providing fresh support for small business expansion. This change will help business owners expand their current development projects and create jobs in their communities.

Secondary Market Expansion

The bill authorizes SBA to establish a secondary market for pools of “first lien” loans under the 504 program. These “first lien” loans from commercial lenders currently have no SBA guarantee. The bill authorizes SBA to deploy federal guarantees for pools of these first lien loans, so that they can be sold to investors in a secondary market. Providing liquidity for these first mortgages will help encourage lenders to continue participating in SBA’s 504 loan program, which provides a key source of capital for community development and other projects.

The bill also empowers SBA to set up a Secondary Market Lending Authority that would make direct loans to broker-dealers that participate in the secondary market for SBA-guaranteed 7(a) loans. These broker-dealers would use the funds to purchase SBA-backed loans from commercial lenders, assemble them into pools and sell them to investors in the secondary loan market. This program may help address some of the issues facing the secondary market for SBA loans and may ultimately help SBA lenders make new loans to borrowers.

Investment Program

The bill helps SBA-licensed Small Business Investment Companies (SBICs) and families of SBIC funds better leverage the capital used to invest in small businesses. The bill sets maximum levels of funding the agency can provide to these companies at up to three times the private capital raised by those companies, or $150 million, whichever is less. It also raises the percentage any one SBIC can invest in a single small business to 10 percent of total capital, and raises from 20 percent to 25 percent the percentage of any licensee’s dollar investments that must be made in “smaller” businesses.

Surety Bonds

The bill also raises the maximum contract amount that can be covered by an SBA guaranteed surety bond from $2 million to $5 million, and, under certain circumstances, for contracts amounting to $10 million, and provides additional funds to cover the costs of expanding this program. Small businesses need surety bonds in order to bid on and obtain many federal and other contracts. The changes are particularly helpful to small and emerging contractors looking to bid on public construction and service projects. SBA guarantees surety bonds to small businesses that private surety companies would not otherwise be able to extend.

COBRA Tax Credit

The Recovery Act of 2009 includes changes to the health benefit provisions of COBRA. If your small business has had to lay off workers due the recession, this may be important for you to know. Under the new law, eligible former employees, enrolled in their employer’s health plan at the time they lost their jobs, are required to pay only 35 percent of the cost of COBRA coverage. Employers must treat the 35 percent payment by eligible former employees as full payment, but the employers are entitled to a credit for the other 65 percent of the COBRA cost on their payroll tax return.

The IRS unveiled new information on their website that includes an extensive set of questions and answers for employers. In addition, the website contains a revised version of the quarterly payroll tax return that employers will use to claim credit for the COBRA medical premiums they pay for their former employees.