Using the 179D Energy Efficiency Tax Deduction as Sales Tool?
The 179D Energy Policy Act makes provisions for a tax deduction after the installation of energy-efficient systems in a building, including HVAC, building envelope insulation and lighting. The building may qualify for up to $1.80 per square foot ($0.60 per square foot for each system). The deduction is available for new construction as well as energy retrofits of commercial buildings and apartment buildings four stories or higher with units for lease. Commercial property owners can claim the benefit with the exception of government-owned buildings where the tax deduction is given to the building designer.
Here are some important details to consider when evaluating the opportunity to apply for a tax deduction under 179D:
How Much Is The 179D Energy Policy Act Deduction?
- Maximum Deduction – $1.80 per square foot = 50% reduction in total annual energy and power costs (compared to a reference building that meets the minimum requirements of ASHRAE Standard 90.1-2001) not to exceed the amount equal to the cost of energy efficient commercial property placed in service during the taxable year.
- Partial Deduction – $0.60 per square foot / per system for reduction of energy consumption through building envelope, HVAC, and Lighting
To qualify for the deduction, the building must improve on 2001 energy-efficiency standards set forth by the American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE). The installation of any modern, efficient lighting, HVAC or water-heating equipment is likely to qualify, as is the use of low-heat transfer glass, shading, insulation or heat storage construction in the building envelope.
Who qualifies for the deduction?
- Building owner at the time of building improvements
- Public Buildings – The owner may allocate the deduction to the designer (architect, engineer, contractor, environmental consultant, or energy services provider) for the taxable year that includes the date on which the property is placed in service
What are the Requirements?
Must reduce total annual energy and power costs with respect to the interior lighting systems, heating, cooling, ventilation, and hot water systems by 50%. However, partial deductions are allowed. Energy simulation is required to justify the deduction; inspection and testing must be completed by a qualified engineer or contractor registered in the jurisdiction.
The building envelope can be the most difficult system to qualify in a renovation/retrofit. Typically, if at least two of these items have been upgraded it may qualify. These systems include: Windows, Roofing Improvements, Window film or tint, Doors, and Wall-Roof or Floor Insulation.
Click here for a comprehensive 179D compliance checklist.