Section 179D Energy Tax Credit Study
Reduce Your Building Energy Costs and Save Taxes
In order to encourage energy efficiency through reduced energy usage, Congress added IRS Tax Code Section 179D under the Energy Policy Act of 2005 (“EPACT”). The provisions under 179D created an incentive in the form of up to $1.80 per square foot (SF) in depreciation tax deductions for commercial buildings. The 179D energy tax deduction allows for an immediate deduction against the taxpayer’s Federal Income Tax liability for an investment in energy efficient commercial buildings.
The 179D energy tax deduction is eligible for buildings that achieve a 50% reduction in energy costs related to the building envelope, 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 2006 through 2020 may qualify for the credit.
While the 179D tax deduction may be extended again, there is no guarantee. Tax laws are always changing, so it’s best not to wait!
Requirements for Claiming the 179D Energy Tax Deduction
- A taxpayer must have a qualified individual perform a field inspection of the building.
- The qualified individual must be either a Registered Professional Engineer (PE) or a contractor licensed in the same jurisdiction as the building.
- The qualified individual must use approved software from the IRS and Department of Energy’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 Section 179D energy tax deduction requirements are not satisfied by LEED certification. A professional engineering analysis by an expert is essential to realize tax savings.
Paragon’s engineering consultants meet these requirements. Contact us today for a no-obligation consultation.
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|
|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|
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!