Unlocking Section 179D and Renewable Credits for Dealerships


Key Takeaways

  • Energy efficiency incentives can support auto dealerships in making building improvements and upgrades, especially with the enhancements in the Inflation Reduction Act.
  • Section 179D allows auto dealerships to claim tax deductions for eligible energy-efficient improvements like lighting upgrades, HVAC system optimizations, and more.
  • Auto dealerships investing in qualifying energy property such as solar panels or energy storage may also benefit from Section 48.

The Inflation Reduction Act has significantly enhanced several energy efficiency opportunities for businesses, including auto dealerships. The optimization of these tax benefits is incredibly valuable for dealers looking to invest in energy efficiency and renewable technologies, providing the opportunity to increase cash flow, meet sustainability goals, and positively impact the community.

Here’s how auto dealerships can benefit from business credits and incentives to increase cash flow.

How Auto Dealers Benefit from Section 179D

Section 179D aims to encourage energy efficiency in commercial buildings. It allows building owners, including auto dealership proprietors, to claim tax deductions for eligible energy-efficient improvements.

  • Projects placed in service between 1/1/2005 and 12/31/2022 may qualify for a deduction of between $1.80 and $1.88 per square foot.
  • For projects completed after 1/1/2023, the deduction increases to $5.36 per square foot for fully qualifying projects courtesy of the Inflation Reduction Act.

Dealerships can benefit from Section 179D enhancements in their buildings in several ways.

Lighting Upgrades

Dealerships require well-lit showrooms and service areas. Upgrading to energy-efficient LED lighting enhances visibility and qualifies for Section 179D deductions. Switching to LED fixtures not only reduces energy consumption but can also significantly contribute to tax benefits.

HVAC Systems

Efficient climate control is pivotal in an auto dealership. Optimizing existing HVAC systems or upgrading HVAC systems to more energy-efficient models can qualify under Section 179D. Advanced thermostats, efficient ventilation, and heating units contribute to both energy savings and potential tax deductions.

Building Envelope Enhancements

Improving insulation, sealing leaks, and upgrading windows or doors to energy-efficient variants are other ways dealerships may qualify for 179D. These enhancements conserve energy and make the building more comfortable for customers and staff.

Section 48 and Its Impact on Auto Dealerships

Section 48 could apply to auto dealerships if the dealership invests in qualifying energy property. These types of properties include solar panels, electrochromic glass, energy storage, or geothermal heating and cooling energy systems, among others.

The Investment Tax Credit under Section 48 allows businesses to claim a percentage of the eligible costs of qualified energy property as a credit against their federal income tax.

Auto dealerships may benefit from a variety of qualifying renewable investment property opportunities. Eligible energy property typically includes:

  • solar energy systems
  • electrochromic glass
  • energy storage
  • geothermal heating and cooling fuel cell systems
  • certain types of wind energy properties
  • other renewable energy technologies

Learn more about how Section 48 is boosting clean energy investments.

graphic outlining different deductions

Next Steps for Dealerships Looking to Maximize Energy Incentive Benefits

Energy efficiency incentives can help auto dealerships looking to improve their buildings and make necessary upgrades.

However, knowing if you qualify and what types of items are available is challenging. To maximize your potential benefit, work alongside an energy consultant specializing in business credits and incentives like 179D.

Once you’ve reviewed opportunities within your organization, implement the identified improvements while adhering to 179D and Section 48 requirements.

When the energy-efficient upgrades are implemented, it’s time to claim the deduction. This involves accurately filing deductions on your tax returns and providing the necessary documentation and certification of your upgrades. In some instances, your dealership may also be eligible for bonus depreciation.

Eide Bailly’s energy efficiency specialists can help you manage your business credits and incentives while remaining compliant.

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About the Author(s)

Kristin Gustafson

Kristin Gustafson, PE, CEM, BEMP, LEED AP

Principal/Sustainability & Energy Incentives Leader
A licensed professional engineer in all 50 states and certified building energy modeling professional with over 20 years of consulting experience, Kristin manages and coordinates 179D Commercial Buildings Energy-Efficiency Tax Deduction studies, 45L Residential Tax Credits and Renewable Energy credits. Additionally, she helps clients with reporting requirements as they pursue their carbon accounting, sustainability, and ESG efforts.