Section 179D Federal Energy Tax Deductions have been extended, thanks to the Tax Extender and Disaster Relief Act of 2019. The deduction was originally introduced in the Energy Policy Act of 2005 to incentivize commercial building owners to incorporate energy-efficient features into their buildings.
This energy efficiency tax deduction is available for new or renovated Energy Efficient Commercial Building Properties (EECBPs) through Dec. 31, 2020. Here’s everything you need to know about the deduction.
Who qualifies for the Section 179D deduction?
Commercial building owners can claim Section 179D deductions when they make energy-saving building improvements.
The primary designer (architect, engineer, contractor, etc.) becomes the owner when a public entity owns the building – such as a military, government, or education facility. And, in the case of public buildings where no federal tax liability exists, the designer of the building takes the deduction.
What are the requirements?
The building owner or designer must prove a 50% reduction in energy usage in accordance with standards set by the American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE Standard 90.1-2007).
A building achieves energy savings through three key systems: the building envelope (ENV), the interior lighting (Lighting), and the HVAC and hot water system (HVAC/HW). A licensed, third-party engineer or contractor will inspect and test the systems to determine if the energy savings goal was met.
How much is the deduction?
The maximum deduction is $1.80 per square foot. However, the deduction cannot exceed the cost of the property. Each system (ENV, Lighting, and HVAC/HW) contributes $0.60 per square foot to the total deduction and can qualify independently.
Partial deductions of $0.30 to $0.60 per square foot are also available.
What is the time frame for eligibility?
In order to meet eligibility requirements, you must complete energy efficiency upgrades between Jan. 1, 2018, and Dec. 31, 2020. And, you only can take the deduction during the year the property opens for business or begins service. It’s important to keep this in mind when planning for potentially lengthy construction projects.
Since this deduction is an immediate write-off, it cannot be claimed more than once – similar to bonus depreciation. If you were eligible in previous years but didn’t take the deduction, it’s not too late! You can amend tax returns going back three consecutive tax years.
The Section 179D deduction is a great way to increase your bottom line while also investing in energy-efficient design. A tax professional can work with you to determine your eligibility for the deduction.
Have questions about tax incentives for energy efficient projects? Let’s talk!