179D is now a permanent fixture of the tax code! As Congress looked to increase relief programs available to businesses, 179D permanence was included in the Consolidated Appropriations Act of 2021.
Was Section 179D Extended?
Are you taking advantage of every green building incentive available to your business?
Over the past several years, Congress and recent administrations have placed a huge emphasis on green building and energy independence initiatives—and none have been more valuable to designers and builders than the Energy-Efficient Commercial Buildings Deduction (more commonly known as section 179D of the tax code).
History and Benefit
The section 179D tax deduction was originally passed by Congress as part of the Energy Policy Act of 2005 in direct response to broader energy usage and independence concerns. According to data released by the U.S. Department of Energy, buildings are responsible for 73 percent of all electricity consumption in the U.S., with about half of that coming from commercial buildings.
In an effort to curb this trend and encourage broader energy efficiency, section 179D allows qualifying building owners and businesses to receive an up to $1.80 per square foot tax deduction for their energy-efficient buildings placed into service during all open tax years (typically the “look back period” for buildings is three years, with some notable exceptions). Any accrued tax deductions from these buildings can be carried-back two tax years or can be carried-forward for up to 20 years.
How to Qualify
For a building to qualify, the energy based improvements must be made to the HVAC or interior lighting systems or to the building’s envelope. Additionally, the enhancements to these systems must surpass ASHRAE 2001 standards for buildings placed into service before 2016—and ASHRAE 2007 standards thereafter.
There are multiple methods to securing 179D and different levels of deductions depending on the energy efficiency levels that your project meets. Energy consumption cost reductions of as little as 10%, in some cases, can result in very substantial tax savings.
It’s critically important that taxpayers examine and exhaust all of the partial and fractional qualification methods to maximize their benefit.