The section 179D tax deduction was passed by Congress in 2005 as part of the Energy Policy Act. It allows qualifying building owners and businesses to receive a tax deduction of up to $1.80 per square foot for their energy efficient buildings or significant improvements placed in service during all open tax years. Any of these tax deductions can be carried back two tax years or forward for up to 20 years.
How do you qualify?
In order for a building to qualify, the new improvements must surpass the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) 2001 standards if placed in service before 2016 and the ASHRAE 2007 standards for buildings placed in service thereafter. The deduction of $1.80 per square foot is broken up into three pieces; the electrical, the HVAC, and the building envelope. There are multiple methods of obtaining this deduction depending on the levels of energy efficiency your project meets. For instance, if the improvements are only made to the HVAC system then the deduction will be limited to sixty cents per square foot which is approximately one-third of the total deduction available.
The deduction is available to the owners and lessees that build or significantly improve their commercial buildings. The commercial buildings that can qualify include:
- Retail Buildings
- Office Buildings
- Industrial Buildings
- Apartment Buildings
- Warehouses
Government owned buildings qualify
Since government entities do not traditionally pay tax, the owners of these buildings can allocate the potential deduction to the businesses responsible for the energy efficient improvements. The eligible designers and builders would include architects, engineers, general contractors, subcontractors, environmental consultants, and energy service providers. However, the deductions in this instance are available on a first come first serve basis. For instance, an electrical contractor would only qualify for a third of the deduction (the electrical improvements) of an energy efficient building. But if the architect that designed the entire building has already received the full $1.80 per square foot available, then the electrical contractor would not be entitled to a deduction.
Some examples of government owned buildings that would qualify are:
- Schools
- State universities
- Libraries
- Town halls
- Airports
- Post offices
- Courthouses
- Fire stations
Where to begin
In order to qualify for 179D, an independent third party firm must review the building and improvements to approve the energy savings and the potential tax deduction. Contact our firm today for more information on this process.
Also, for those businesses that are seeking the 179D deduction for work performed on government owned buildings, these companies are required to obtain an “allocation letter” signed by the government entity. This letter will allow the government entity to transfer the deductions. Obtaining this letter secures the entities right to take the deduction and ultimately starts the process. The next step will be engaging an independent third party firm to approve the energy savings.
For More Information
For more information on this valuable energy incentive please contact John J. Rainone, CPA/MBA, CCIFP today at 401-921-2000 or jrainone@disantopriest.com.