As of January 1, 2022, Montgomery County began its transition to the new Energy-Efficient Buildings Tax Credit Program. To be eligible for the tax credits under the new program, buildings need to first demonstrate energy reduction above code requirements. The tax credits can then be further increased by a variety of green building certifications.  As a building owner, it is imperative to understand the changes made by the county and we will help alleviate any confusion you have or information you may have overlooked.

History of Montgomery County’s Green Building Law

In 2007, Montgomery County adopted the Green Building Law that aligned with the County’s GHG emissions reduction goals. This law rewarded buildings that achieved a LEED certification that goes beyond code requirements through a green building property tax credit program. Over the years, LEED certifications have become commonplace which resulted in the tax credit program being oversubscribed. Montgomery County has revised this program and the new Energy-Efficient Buildings Tax Credit Program was signed into law in September 2020. The revised program is known as Bill 10-20.

Revised Tax Credit Program Structure

The new program is a two-tiered incentive structure, the greater the performance within a tier the higher the credit available for property owners.

• First Tier – proven energy performance
• Second Tier – green building certification

To be eligible for a property tax credit both new construction and existing buildings have specific energy reduction requirements that must be met. If the energy reduction requirements are met, an additional building sustainability bonus is available to further reward building owners that pursue higher energy reduction efforts. Bill 10-20 removes the annual cap on the credit for new buildings with a four-year limit on the credit. Existing buildings will maintain an annual cap but will be revised on a regular cycle to account for inflation which the original program did not account for.

First Tier

The first tier focuses on energy reduction levels which must be achieved to earn an incentive. Newly constructed buildings must exceed any code or zoning requirements by at least 10% to be eligible for incentives. Existing buildings must improve their energy performance by utilizing the ENERGY STAR Portfolio Manager which building owners should already be familiar with. Moreover, energy-efficient buildings located in equity emphasis areas can receive an extra 10% credit in addition to the Energy Reduction Tax Credit earned without requiring higher energy reductions.

Second Tier

The second tier provides additional credit to buildings that achieve a certain level of third-party green building certification. Stakeholders emphasized the importance of recognizing other market-driving sustainability certifications for new and existing buildings aside from LEED. This ensures a broader selection of buildings to be eligible for this tax credit program. The third-party certifications include BREEAM, Passive House, Living Building Challenge, and other robust systems that strive for net-zero buildings.

What is considered a New Construction or an Existing Building?

Before we begin calculating the tax credit, let’s review:

• New Construction Definition – A building that has completed construction and received a formal Certificate of Occupancy (CofO) from the County is in line with the New Construction application path. If there are major renovations that intend to bring the building up to current building codes, then the building would qualify under the New Construction incentive program. Within the New Construction program, Core and Shell buildings with full mechanical systems and a weather-sealed thermal envelope are included in the incentive program.
• Existing Building Definition – A building that has received a formal CofO from the County and has achieved at minimum 50% occupancy for no less than 12 contiguous months.

How is the Energy-Efficiency Buildings Tax Credit Calculated for New Construction Buildings?

New construction buildings each have a multiplier that is used to determine the property tax credit percentage available. This multiplier is dependent on the energy use reduction over code and the ENERGY STAR score. The higher the savings or the higher the ENERGY STAR score, the larger the multiplier you receive which in turn results in a higher property tax credit.

Tier 1

For a newly constructed building to be eligible for a property tax credit, the commercial/multifamily property must:

• Be 10,000 sf of gross floor area and greater
• Received their Use of Occupants (U&O) permit in the prior 12 months
• Achieved a minimum 10% performance above Montgomery County’s current building code requirements using DPS-approved modeling software

A building that has completed construction in 2021 is eligible to apply for this tax credit if the energy reduction requirements are met and only if the U&O permit was received at least 12 months earlier. Creating incentives for new construction prompts developers and building owners to be innovative in their sustainability efforts while prioritizing building above applicable code to earn a higher property tax multiplier. If the property is eligible for the tax credit, they will receive a credit granted against county taxes owed for 4 years which is capped at 100% annually.

Tier 2

If a property has earned an energy reduction credit, an additional tax credit percentage is available for achieving an eligible green building certification.

• A 25% property tax credit bonus is available to properties that achieve LEED Gold, NGBS Gold, PHIUS+/ Passive House, or BREEAM-NC Excellent or equivalent
• A 75% property tax credit bonus is available to properties that achieve LEED Platinum, NGBC Emerald, LBC Petal Certification, Living Building Certification, or BREEAM-NC Outstanding or equivalent

If a building earns Living Building Certification the building owner is eligible to extend their 4-year property tax credit for an additional year.

To calculate the credit granted: Round your building’s percentage above code to the nearest whole number and multiply it by the credit multiplier. This will determine the green building property tax credit you will receive.

How is the Energy-Efficiency Buildings Tax Credit Calculated for Existing Buildings?

The previous green building property tax credit had a large barrier of entry for existing buildings that were trying to achieve LEED Existing Buildings Operations + Maintenance (LEED-EBOM) certification. Building owners within the county have noted that it can be challenging to achieve a score of 75 or higher for an ENERGY STAR certification which is a prerequisite for LEED-EBOM. The new incentive framework is better tailored for building owners who are striving to be more energy-efficient by rewarding them in gradual increments for their energy reductions. This allows for better inclusivity of all building owners, even those who only need a small incentive to begin taking steps towards energy conservation. It is important to note that condominiums are not eligible for this credit since they are considered residential buildings. If the property is eligible for the tax credit, they will receive a credit granted against county taxes owed for 2 years which is capped at 100% annually.

The energy reduction requirements to receive a property tax incentive for existing buildings states that a commercial/multifamily property must:

• Set a 12-month baseline in the ENERGY STAR Portfolio Manager Tool
• Summarize actions taken to reduce energy use
• Measure improved energy performance using Portfolio Manager

The 12-month baseline and performance period cannot overlap or be more than 6 calendar years apart and must be the same Commercial Buildings Energy Consumption Survey (CBECS) comparison data. In addition, an application must be submitted no later than 12 months after the improved 12-month dataset. If ENERGY STAR cannot be earned due to usage type, property owners can use the Energy Use Intensity (EUI) before and after implementing energy improvement measures as a substitute but can only be accepted on a case-by-case basis. Buildings that have earned an incentive for existing buildings are eligible to reapply twice after their initial two-year credit cycle has finished. If a building reapplies, it must resubmit a new baseline year while providing information on how it achieved energy reductions.

To calculate the credit granted: Subtract your building’s improved ENERGY STAR score from your baseline ENERGY STAR score, then multiply the difference by the multiplier based on the improved ENERGY STAR score tier.

(Improved ENERGY STAR score – Baseline ENERGY STAR score) * Multiplier of improvement tier = Annual Credit Awarded for 2 years

If the property satisfies these requirements, then an additional tax credit incentive is available for achieving an approved green building certification. Applicants that achieved a building sustainability bonus must achieve a higher certification than the previous credit submission to encourage continual energy reduction improvements.

• A 25% property tax credit bonus is available if a property achieves LEED-O+M or BREEAM In-Use Excellent or equivalent
• A 50% property tax credit bonus is available if a property achieves LEED-O+M Platinum or BREEAM In-Use Outstanding or equivalent

To calculate the credit granted: Add the property tax credit percentage earned from the Energy Reduction Requirement to the credit percentage earned from your building’s certification using the most recent certification version available.

Montgomery County’s new Energy-Efficient Buildings Tax Credit Program supports the county’s GHG emissions reduction and net-zero energy design goals. The program’s 2-tier framework rewards energy-efficient decisions first, whole building sustainable second, and ultimately provides the highest incentive for buildings that reach for net-zero-energy design. The program changes allow for more inclusivity, higher incentives, and greater rewards. Throughout the program’s life cycle, Baumann Consulting will share important updates related to Montgomery County’s roadmap and/or upcoming dates that need your attention.

If you submitted an Intent to Apply for the green building property tax credit before December 31, 2021, read our first blog in this series to be informed of upcoming deadlines and corresponding links to the Montgomery County, Maryland Division of Treasury resources.

Do you have any questions about the new tax credit program? Contact Us!