179D – Energy-Efficient Buildings Deduction
Are you taking advantage of the energy-efficient improvements that you have made to your building? The 179D commercial buildings energy efficiency tax deduction was made permanent in the Consolidated Appropriations Act of 2021 and provides business owners and government contractors, including healthcare property owners, a new tax incentive.
Congress passed the 179D tax deduction in 2005 as part of the Energy Policy Act. In an effort to encourage greater energy efficiency, section 179D allows qualifying businesses and building owners to receive a deduction of up to $1.80 per square foot for their energy-efficient buildings placed into service during any open tax years.
For a building to qualify, the improvements must be made to the HVAC system, hot water system, interior lighting system or to the building’s envelope. In addition, improvements must surpass ASHRAE 2001 standards for buildings placed into service before 2016 and ASHRAE 2007 standards thereafter. The deduction can result in substantial tax savings depending on the energy efficiency levels met by the project. Energy consumption cost reductions of even 10% can result in a savings.
The 179D deduction is available to building owners and lessees who make improvements to their buildings, office space and various other properties. In addition, designers and builders, such as architects, engineers, contractors, environment consultants and energy service providers can also qualify for this tax deduction under a special rule for public property. If they have enhanced the energy efficiency of a new government-owned building or made energy-saving renovations to existing government owned buildings, they can qualify to claim this deduction. Since government entities do not pay tax, the owners of these buildings can allocate the tax savings to the person or firm that was responsible for the energy saving improvements. Government owned building that would potentially qualify for this 179D would include schools, county and other municipality buildings.
Contact your Marcum tax professional to learn more about the 179D tax deduction.