The Section 179D deduction (179D) has been in effect since 2006 and it was recently made permanent by legislation passed at the end of 2020.
What Is The Section 179D Tax Deduction?
Internal Revenue Code Section 179D allows a deduction of up to $1.80 per square foot for energy-efficient commercial building property (EECBP), including interior lighting, the building envelope, and mechanical systems.
How much is the 179D energy tax deduction worth?
The maximum 179D tax deduction is $1.80 per square foot of qualifying property. As an example, a qualifying 100,000 square foot commercial building could be eligible for a $180,000 deduction.
Who Can Take Advantage of the 179D Tax Deduction?
The “designer” of government-owned EECBP is eligible for the 179D tax credit. A designer creates the technical specifications for installation of EECBP, and the definition of a designer could include architects, engineers, general contractors and subcontractors. However, a person that merely installs, repairs, or maintains EECBP is not a designer.
Note: projects may have more than one qualifying designer. Therefore, an eligible designer should consider pursuing this deduction as early in the process as possible, before another designer claims the deduction. The designer of EECBP related to a government owned facility placed in service in a current year or the previous three years (assuming the statute of limitations has not closed on any of those years) could benefit from the Section 179D deduction.
A Recent Example
We worked with an architectural firm who designed the EECBP for several government-owned buildings. We analyzed the previous three years and determined the architectural firm is eligible for a $872,400 deduction (based upon 799,000 square feet of EECBP).
Privately Owned Buildings
Who Can Take Advantage of the 179D Deduction?
Privately-owned properties placed in service as of January 1, 2006, could benefit from the 179D deduction. The deduction is available for building owners, as well as tenants who pay for and are depreciating the energy-efficient improvements.
A Recent Example
We worked with a manufacturing company whose facility underwent an 183,000 square foot expansion, including the installation of both energy efficient HVAC and lighting. By gathering the necessary information and completing the certification, the client received over $325,000 in deductions on their current year tax return.
How is the 179D tax deduction obtained?
To claim the 179D deduction, energy savings must be certified by an unrelated “qualified individual” who is a contractor or professional engineer licensed in the same jurisdiction as the building. A site visit of the property is required, as well as energy modeling using software approved by the Department of Energy.
Eide Bailly’s in-house Energy Incentives team includes Professional Engineers and energy modelers who are able to generate and certify these deductions after the necessary due diligence and review. Get the tax savings you are entitled to with the 179D deduction.