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Section 179D Tax Deduction- Federal Deduction for the Installation of Energy Efficiencies in Real Property

 

Section 179D Tax Deduction- Federal Deduction for the Installation of Energy Efficiencies in Real Property.

 

As a direct response to broader energy usage and independence concerns, the Section 179D tax deduction was originally passed by Congress as part of the Energy Policy Act of 2005. According to data released by the U.S. Department of Energy, buildings are responsible for 73 percent of all electricity consumption in the U.S., with about half of that coming from commercial buildings.

In an effort to curb this trend and encourage broader energy efficiency, section 179D allows qualifying building owners and businesses to receive an up to $1.80 per square foot tax deduction for their energy-efficient buildings placed into service during all open tax years (typically the “look back period” for buildings is three years, with some notable exceptions). Any accrued tax deductions from these buildings can be carried-back two tax years or can be carried-forward for up to 20 years.

179D Extension Update: Update: On February 9, President Trump signed into law the Bipartisan Budget Act of 2018. This new law retroactively renews the §179D deduction for 2017. Therefore, commercial building owners and primary designers may now claim the deduction for qualifying energy-efficient projects completed in 2017. At this time, however, Congress has not taken any action to extend §179D for 2018 or future years.

How to Qualify

For a building to qualify, the energy-based improvements must be made to the HVAC or interior lighting systems or to the building’s envelope. Additionally, the enhancements to these systems must surpass ASHRAE 2001 standards for buildings placed into service before 2016—and ASHRAE 2007 standards thereafter.

There are multiple methods to securing 179D and different levels of deductions depending on the energy efficiency levels that your project meets. Energy consumption cost reductions of as little as 10%, in some cases, can result in very substantial tax savings.

It’s critically important that taxpayers examine and exhaust all of the partial and fractional qualification methods to maximize their benefit.

Who Can Qualify

179D is available to building owners and lessees that make eligible energy-efficient improvements to their commercial buildings, which can include:

  • Retail buildings
  • Office buildings
  • Industrial buildings
  • Apartment buildings (at least 4 stories)
  • Warehouses

Designers and Builders of Government Owned-Buildings Also Qualify

In addition, eligible designers and builders (such as architects, engineers, contractors, environmental consultants and energy service providers) can also qualify for 179D under a special rule for public property. In this case, designers and builders that have enhanced the energy efficiency of a new government-owned building or made energy-saving renovations and retrofits to existing government-owned buildings are able to claim the deduction. As government entities do not traditionally pay tax, the owners of these buildings can allocate the accrued tax savings to the business responsible for the energy-saving enhancements.

Government-owned buildings at the federal, state or local levels can all potentially qualify for 179D, including:

  • Schools
  • State universities
  • Libraries
  • Town halls
  • Airports
  • Transportation facilities
  • Post offices
  • Courthouses
  • Military bases
  • Government offices
  • Institutions
  • And others

 

Other Requirements

Third-party certification is required to claim this incentive.  As a benefit to our clients, we work with leading third-party certifier. Our experience has helped us to simplify the certification process and allow us to offer the most competitive fees in this professional specialty.

Additionally, for businesses that are seeking 179D based on work performed on government-owned buildings, these companies are required to secure an allocation letter that allows the government entity to transfer the benefit to the taxpayer. This means that an allocation letter must be secured.

 

 

 

 

 

 

 

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