May 7, 2021

Building Energy Tax Incentives Made Permanent

By Charles Goulding, CPA, President of Energy Tax Savers & Raymond Kumar, CPA, Energy Tax Savers

Building Energy Tax Incentives Made Permanent Tax Credits & Incentives

The Consolidated Appropriations Act, 2021 (the Act), enacted on December 27, as 2020 came to a close, extended a number of tax provisions. One of these is the Commercial Buildings Energy Efficiency Tax Deduction, or the Energy Policy Act (IRS Code Section179D), an energy efficiency tax incentive available for both commercial and government buildings.

Section 179D, which has been in effect since 2006, primarily enables building owners to claim a tax deduction for installing qualifying systems. Depending on the lease, tenants may also be eligible. Benefits may additionally extend to architects and designers of certain government buildings.

179D was originally set to expire at the end of 2020. The Act makes this important provision permanent. Additionally, the amount of the tax deduction (currently maximized at $1.80 per square foot) will now be subject to annual increases based on inflation.

Under IRS Code Section 179D, installations related to lighting, HVAC (heating, ventilation and air conditioning) and building envelope (e.g., roof, windows, exterior doors and walls) are eligible. To qualify, the efficiency levels of the a building’s lighting, HVAC and building envelope systems must be more efficient than standards set by the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE), by specified levels.

179D provides that both commercial building owners and government building designers (including architects, engineers, energy consultants and retrofitters) are eligible to receive the tax benefit for building energy projects completed beyond 2020. Eligible government buildings for designers include federal, state and local building categories. The largest government building categories include K-12 public schools, state universities and community colleges.

All commercial buildings are eligible for this incentive. The benefits are particularly advantageous for large distribution centers/warehouses and industrial buildings, which typically qualify for the maximum $1.80 per square foot deduction from an LED lighting retrofit.

Companies that have had renovations or are planning changes should consider this benefit.