Energy Efficiency & Sustainability Consulting

179D Energy Efficiency Tax Deduction

The two-year extension of 179D applies retroactively for commercial energy efficiency projects in 2015 and those placed into service by the end of 2016.  These tax savings can offset the upfront costs associated with implementing energy efficiency measures and can significantly improve cash flow.

Energy Efficiency Tax Deduction

About Section 179D

Section 179D of the Internal Revenue Code is a tax incentive available for energy reduction projects in commercial buildings. Originally enacted under the 2005 Energy Policy Act, this provision allows for a tax deduction of up to $1.80 per square foot in both new and existing buildings. Commercial property owners and tenants who make expenditures associated with installing energy efficient lighting, HVAC, and/or building envelope systems can take advantage of this significant Federal tax deduction.

Qualifying systems and materials may include:

  • Energy-efficient lighting fixtures
  • Lighting sensors and controls
  • Heating, Ventilation, and Air Conditioning (HVAC)
  • Automatic thermostats, ventilation controls, and other monitoring equipment
  • Hot water systems
  • Building envelope systems
  • High-efficiency insulation in ceilings, walls, floors, and roofs
  • Energy management systems and controls

 

How it Works

Commercial building owners and tenants are eligible for a deduction of up to $1.80 per square foot of the building’s total area. To receive the maximum deduction, the building’s energy and power costs must be reduced by a minimum of 50% as compared to predetermined ASHRAE standards.

Buildings that do not achieve 50% savings can still qualify for a deduction of $0.60 – $1.20 per square foot. Available deductions for partially qualifying systems include:

  • $0.60/sq. ft. for HVAC systems that meet 15% savings
  • $0.60/sq. ft. for Lighting systems that meet 25% savings
  • $0.60/sq. ft. for Building Envelope systems that meet 10% savings

Requirements for Qualification

To determine whether a commercial building qualifies, an energy savings calculation must be performed with Department of Energy approved software. To verify results, an on-site inspection must be conducted after the energy efficient installation(s) has been placed into service. This certification process and inspection must be completed by a qualified engineer or contractor in the jurisdiction of the qualifying building.

Time Frame

The 179D tax deduction may be claimed for new construction and renovations or improvements that have been placed into service between January 1, 2006 and December 31, 2016. Qualifying building owners and tenants can retroactively take this deduction for the 2015 tax year without amending previous year returns.

 

More Information

 

Contact Us Today