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What is 179D tax deduction?

Section 179D tax deduction is a popular incentive that allows building owners to claim $1.80 per square feet for energy-efficient buildings or installing systems to that effect. To qualify, buildings either newly constructed or improved ones must meet or exceed some key energy reduction requirements and ASHRAE standards. It is a step towards incentivizing contractors, architects, designers and engineers for environmentally sound government buildings.

Who can claim 179D tax deduction?

Engineers, architects, designers who are responsible for energy-efficient designs or renovation of government building.

Contractors and builders who have increased the energy-efficiency of the government building under lighting, HVAC installations also qualify for the 179D tax deduction.

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K-12 Schools

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Military Bases

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Prisons

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Courthouses

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Universities

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Libraries

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City Parks

What improvements are eligible for the 179D deduction?

Taxpayers who invest in constructing new buildings or improving their existing buildings are eligible for 179D deduction. These investments must be aimed at reducing energy use. The improvements eligible under ASHRAE standards include:

  • Building envelope like improvements to walls, doors, floors, fenestrations, and roof.
  • HVAC improvements for energy efficiency
  • Interior lighting solutions for energy efficiency

What are the benefits of the 179D tax deduction?

You get anywhere between $90K and $540K depending on the commercial building size, lighting, HVAC, and envelope.

Illustration of potential tax saving from 179D?

An energy project costing $20,000,000 is completed for a library with 500,000 square feet. Typically, the improvement is depreciated over 39 years and provides annual depreciation of $50,000. With the qualified IRC Sec. 179D deduction, additional depreciation can be taken in the year that the energy efficient property is placed in service, resulting in significant tax claim to the taxpayers: 500,000 sq ft x $1.80 benefit rate = $900,000

The 179D study process

To qualify for the 179D tax deduction, one needs to follow due process. Broadly there are two parts to the 179D study process.

  • Evaluation: In this part, you evaluate the building to determine if they qualify for 179D tax deduction. The building is also compared to the reference model for energy efficient qualifications under ASHRAE norms. This also involves a physical visit to the building by a licensed qualified third party in the state.
  • Documentation: There are two primary documents required for 179D tax deduction. Allocation letters confirming ownership of property, energy efficiency of the building and signed by authorized personnel are required for 179D tax deduction. Secondly, a report certifying the building qualifies for 179D along with an energy model that shows energy reduction compared to ASHRAE standards.

1. DISCOVERY & ASSESSMENT

Project List – Identify Buildings Secure Allocation Letter(s) Obtain Documentation

2. QUALITATIVE & QUANTITATIVE ANALYSIS

Energy Modeling, Field Inspection, Certification, and Deliver Final Deduction Numbers for Filing

3. REPORTING

Document Cataloguing, Summary Drafting, and Final Report

How can we help? the alliantgroup advantage

  • Risk-free, no-cost preliminary assessment
  • Top class staff of licensed engineers in every state who give utmost attention to every aspect of the critical 179D tax deduction
  • State of the art cutting edge proprietary software interface that aligns with the US Department energy modeling software used by the IRS
  • Best licensed engineers in all 50 states in-house
  • Highly skilled team of energy modelers who specialize in the three qualifying building systems
  • Well established relationships with 8000+ government entities
Alliantgroup has delivered over $3 billion in 179D tax deduction. Our track record for 179D tax deductions are as follows:

  • Nearly $13.3M deduction identified for 51 properties in architecture and engineering
  • Close to $12.8M deduction for mechanical contractor in controls, HVAC, and sheet fabrication
  • Total $2.6M deductions for general contractors in interior lighting and HVAC

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Active States

Section 179D Tax Deduction can be claimed in all 50 states through a licensed third party.

FAQ’s – Frequently Asked Questions

Which buildings do not qualify for the 179D tax deduction?

Single-family homes, private family buildings with three or fewer stories, and manufactured properties do not qualify for the 179D tax deduction. Religious buildings and similar organizations’ buildings do not qualify because they are tax exempt.

Which energy modelling software does alliantgroup use for verifying the 179D tax deduction?

Single-family homes, private family buildings with three or fewer stories, and manufactured properties do not qualify for the 179D tax deduction. Religious buildings and similar organizations’ buildings do not qualify because they are tax exempt.

Over what time period is the tax deduction available?

A tax deduction can be taken for a project started in 2018. The deduction has been made permanent, so all current and future projects are eligible for the tax deduction.

Can nonprofit organizations qualify for the 179D tax deduction?

No, this tax deduction is only applicable to building owners who pay taxes. The exception is for designers who work on government-owned buildings.

How does renewable energy fit into the tax deduction calculation?

No credit can be claimed for renewable electricity as per the Act

Is 179D applicable for a cold storage building where refrigeration is a major part of the building?

ASHRAE Standard 90.1 does not cover buildings that are mostly refrigeration-based. So cold storage buildings would fall outside the scope of 179D tax deductions.