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.
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 Originally enacted under the 2005 Energy Policy Act, this provision allows for a tax deduction of up to $1.80 per square foot in both new and existing buildings.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:
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:
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.
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.