179D – Energy-Efficient Commercial Buildings Deduction
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).
The 179D deduction has become such a powerful tool that congress Made 179D Permanent in the Consolidated Appropriations Act of 2021 and gives business owners and government contractors a tax incentive for energy-efficient improvements to commercial and government buildings.
Furthermore, at the state level, there have been recent developments that have streamlined the process of claiming the 179D – Energy Efficient Commercial Buildings Deduction. Government contractors with projects in states like Ohio and Florida now have a quicker and more reliable way of receiving required allocation letters from the government. Contractors working in those states should definitely take another look at the 179D deduction.
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.
Who Can Qualify
179D is available to building owners and lessees that make eligible energy-efficient improvements to their commercial buildings, which can include:
- Retail buildings
- Office buildings
- Industrial buildings
- Apartment buildings (at least 4 stories)
Designers and Builders of Government Owned-Buildings Also Qualify
In addition, eligible designers and builders (such as architects, engineers, contractors, environmental consultants and energy service providers) can also qualify for 179D under a special rule for public property. In this case, designers and builders that have enhanced the energy efficiency of a new government-owned building or made energy-saving renovations and retrofits to existing government-owned buildings are able to claim the deduction. As government entities do not traditionally pay tax, the owners of these buildings can allocate the accrued tax savings to the business responsible for the energy-saving enhancements.
Government-owned buildings at the federal, state or local levels can all potentially qualify for 179D, including:
- State universities
- Town halls
- Transportation facilities
- Post offices
- Military bases
- Government offices
- And others
Qualifying for 179D requires an independent, third-party firm to review the building to confirm the energy savings and potential tax deduction. Click here to learn more about alliantgroup’s platinum process for identifying 179D tax deductions.
Additionally, for businesses that are seeking 179D based on work performed on government-owned buildings, these companies are required to secure an allocation letter that allows the government entity to transfer the benefit to the taxpayer. At alliantgroup, we employ a Government Relations Department fully devoted to securing the allocation letter for our clients. Click here for more information.
For more information on the Energy-Efficient Commercial Buildings Deduction (179D), please complete the form below to contact alliantgroup.
For immediate assistance, contact Lynn Hedlund
Would you like additional information or do you have questions about 179D?