Section 179D Energy Tax Credit Study

FACT: The Section 179D tax credit requirements are not satisfied by LEED certification. An extensive engineering analysis by an expert is essential to realize tax savings.

To Claim the Deduction:

  • A taxpayer must have a qualified individual (either an engineer or a contractor licensed in the same jurisdiction as the building) perform a field inspection of the building.
  • A taxpayer or qualified individual must use approved software from the Treasury Department’s list of certified software to calculate the energy savings.
  • A qualified individual must certify the results.
  • The building or energy renovation must be capitalized after January 1, 2006.

The Energy Policy Act of 2005, (“EPACT”) added IRS Tax Code Section 179D, creating a new incentive in the form of up to $1.80/sf in tax credits for commercial buildings. That’s and immediate deduction against the taxpayers Federal Income Tax liability for an investment in energy efficient commercial buildings.

The deduction is eligible for buildings that achieve a 50% reduction in energy costs related to the building envelope, hot water systems, heating, ventilating, air conditioning (HVAC), lighting and lighting controls.

Originally effective from 1/1/2006 through 12/31/2007, the deduction was extended through 12/31/2016 by The PATH Tax Act of 2015. It was extended again on 12/20/2019 under the year-end government spending package. The latest 179D Energy extension is retrospective from 2017, and prospective through 2020. This means that commercial buildings placed into service in years 2018, 2019 and 2020 qualify for the credit.

For more information about the 179D Energy Tax Credits, visit the government Office of Energy Efficiency and Renewable Energy.

Success Story

Hotel

While not intentional, a 160 room hotel with restaurants and large meeting rooms qualified for the lighting portion of the credit for a first year tax savings of $46,800.

Distribution Center

Refrigeration, freezer, and dry storage areas at this center with sensor controlled lighting, insulated walls and ceilings, and highly reflective roof satisfied the lighting and building envelope requirements and saved $228,000 the first year!

The potential deduction and tax savings for 100%, 66 2/3%, and 33 1/3% qualification is shown below:

 

Gross Sq. Ft. Area Section 179(D) Full Credit Rate Full Credit Potential Deduction  
200,000 1.80 $360,000.00
39% <== Tax Rate
100% Tax Savings ==> $140,400.00
66 2/3% Tax Savings ==> $93,604.68
33 1/3% Tax Savings ==> $46,795.32

 

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