Energy Efficiency Incentives

A trusted advisor can help you take full advantage of energy efficiency credits and deductions. such as 179D, 45L, and Section 48. Eide Bailly is the number one accounting firm offering energy efficiency credits and deductionsservices with professional engineers, energy modelers, and HERS raters all in-house and at the ready to help you maximize your energy credits and deductions.

Section 179D Energy Efficiency Deduction

179D is a section of the tax code that provides a deduction of up to $1.88 per square foot for energy efficient commercial building property (EECBP) for projects placed in service between January 1, 2005 and December 31, 2022, and up to $5.00 per square foot for properties placed in service after January 1, 2023.

Privately Owned Buildings
Privately owned commercial buildings (industrial, office, retail, healthcare, etc.) and residential buildings at least 4-stories tall that include energy-efficient components and were placed in service as of January 1, 2006, could benefit from the Section 179D Energy Efficiency Tax Deduction. The owner of the EECBP is eligible for the deduction—this is typically the building owner but could include tenants who have paid for and are depreciating the EECBP.

Government-Owned Buildings
Most government-owned buildings (both newly constructed and renovated) that are substantially complete in an open tax year can potentially qualify for the 179D deduction. The “designer” of government-owned EECBP is eligible for the deduction. A designer creates the technical specifications for installation of EECBP and could include architects, engineers, general contractors, and subcontractors. However, a person that merely installs, repairs, or maintains the property is not a designer. Note: projects may have more than one qualifying designer. It is advantageous to pursue this deduction as early in the process as possible. If you were the designer of the EECBP of a government-owned facility placed in service in an open tax year (typically the last three), you could benefit from the 179D deduction.

Section 45L New Energy Efficient Home Credit

Section 45L New Energy Efficient Home Credit is a tax credit for properties that meet certain energy efficiency standards. Newly constructed or substantially renovated low-rise multifamily and single-family homes that utilize energy-efficient building components, leading to energy savings of at least 50% over the 2006 International Energy Conservation Code, are eligible for the 45L credit.

For multifamily units that are three stories or less (above grade) and single-family homes first occupied in an open tax year and prior to January 1, 2023, a $2,000 per unit credit applies.

Properties first occupied after December 31, 2022, must meet increased efficiency standards as set forth by The Environmental Protection Agency’s ENERGY STAR Program and may qualify for a tax credit ranging from $500 to $5,000 per home. The three-story height limitation has also been eliminated.

Energy Efficient Retrofit Study

This tax deduction can be generated by an energy efficient retrofit of an existing building. For-profit clients may qualify if they own and have basis in both a new energy-efficient property and an existing property that is being replaced. This study is comprised of a Section 179D energy efficiency deduction, qualified improvement property, cost segregation and partial disposition analysis. The deduction amount varies based on a number of variables, but we typically see deductions up to $6-10 per square foot of renovated space.

Changes to Section 48, The Investment Tax Credit (ITC)

Solar Energy Property
This credit reduces a taxpayer’s federal tax liability by a percentage of qualifying solar energy property costs. Only active solar systems are eligible for the credit, an active solar system is based on the use of mechanically forced energy transfer, such as the use of fans or pumps to circulate solar generated energy. Passive solar systems and solar property used for swimming pools are not eligible.

The credit percentage was 26% for projects with construction beginning after December 31, 2019, and a placed into service date before January 1, 2022. See the Inflation Reduction Act Provisions for projects with construction beginning after December 31, 2021, and prior to January 1, 2033 (January 1, 2025, for property using fiber-optic distributed sunlight). The credit begins to phaseout through December 31, 2034.

Qualified Geothermal Energy Property and Geothermal Heat Pumps
This credit reduces a taxpayer’s federal tax liability by a percentage of qualifying geothermal property costs. Geothermal energy property including production, distribution, and dual-use equipment, and geothermal heat pump property may all qualify for this credit. Equipment used in electrical transmission or geothermal fluid distribution as well as geothermal deposits located outside the United States or a possession of the United States are not eligible.

The credit percentage was 26% for projects with construction beginning after December 31, 2019, and a placed into service date before January 1, 2022. See the Inflation Reduction Act Provisions for projects with construction beginning after December 31, 2021, and prior to January 1, 2033. The credit begins to phaseout through December 31, 2034.

How Do You Qualify for Energy Efficiency Tax Credits and Deductions?

The first step in understanding the energy efficient credits and deductions is knowing if you qualify. Here are some key indicators that you may be eligible:

• You are renovating an existing structure or building a new building.
• You are a building owner in the construction and real estate industries who uses energy efficient lighting or HVAC.
• You are a general contractor, electrical contractor, HVAC contractor, supplier, architect or engineer for a government-owned building.
• You own a 10-unit or larger multifamily building or are a production home builder.
• Your property utilizes solar equipment or materials.
• Your property utilizes geothermal energy or geothermal heat pumps.

Choosing the Right Firm for Your Energy Efficiency Credits and Deductions

Tax credits and deductions exist to help you save money and operate efficiently. But often the first step is understanding if you even qualify. Working alongside a trained professional who specializes in tax credits and deductions can help you make sense of your particular situation and maximize the benefit. Eide Bailly’s nationally recognized industry specialists have expertise to help you maximize energy efficient incentives. They have worked with hundreds of clients, helping to achieve maximum benefit and equating to millions of dollars saved.

The following are examples of organizations that have benefited from working with Eide Bailly’s energy efficient credits and deductions team:

The following are examples of organizations that have benefited from working with Eide Bailly’s energy efficient credits and deductions team:

Take the confusion out of the energy efficiency tax credits and deductions process. Our energy efficient credits and deductions team understands the ins and out of the 179D energy efficient tax deduction, the 45L energy efficient tax credit, and the changes to Section 48. We can help you assess your eligibility and then work with you to maximize the potential benefit of energy efficient incentives.

Maximize your energy efficiency tax credits and deductions today.

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