179D | Commercial Building Energy Tax Deduction - ELB Consulting

The Energy Policy Act of 2005 (EPAct) established the Energy Efficient Commercial Building Tax Deduction, commonly known as the 179D. 

Background

EPAct created this 179D Energy Efficient Commercial Building Tax Deduction, as our politicians in Washington, D.C. recognized that a substantial portion of U.S. energy consumption is attributable to commercial buildings. Thus the underlying goal of the EPAct 179D is to provide building owners tax incentives to help offset the increased costs associated with constructing energy efficient commercial buildings.

This EPAct 179D provision, allows the owner of a commercial building to take a federal tax deduction of up to $1.80 per square foot for the increased installation costs of energy efficiency components. Since its inception in 2005, the increased costs to ‘build green’ have substantially come down, helping owners realize a more rapid ROI on the additional investment.

The 179D Energy Tax Deduction looks at the building subsystems: the Envelope, Lighting, and HVAC/Hot Water, with the goal of reducing the property’s carbon footprint. Building owners can qualify not only on new construction, but for any building that has done energy efficient lighting retro fits or upgrades. Tenants may also qualify if they paid for, and own the lighting improvements.

The overarching purpose of the deduction is to encourage energy efficiency by creating a tax incentive intended to benefit a commercial building owner.

 How Does 179D Work? 

A building qualifies for the full $1.80 deduction when the reduced energy use of its 3 subsystems; Envelope, Lighting, and HVAC/Hot Water is certified to exceed designated ASHRAE standards by at least 50 percent. Partial deductions of $0.60 per square foot are available for lighting alone; whether part of new construction, or a lighting retrofit within and older structure.

To obtain EPAct tax benefits, IRS approved modeling software must be used by qualified engineers. Once the building is certified by an engineer to meet the 179D energy requirements, using the I.R.S. approved modeling software, and independently verified by a third party, the deduction may be taken.

What Qualifies? 

Commercial real estate buildings of any size may qualify, as well as leased multi-family apartment complexes of four (4) or more stories, and most energy efficient lighting renovations.

Who benefits from 179D? 

Building owners who take advantage of 179D not only enjoy this I.R.S. tax deduction, they will benefit from  having significantly reduced energy expenses costs, plus this green influenced design and construction properties enhance the building’s long term market value, and is socially conscious. All while improving the environment, which benefits everyone.

Worth noting: In addition to the 179D, EPAct also created the 45L Residential Energy Efficient Home Tax Credit. This should be of particular interest to any owner/developer of multi-family apartments or condominiums, providing a $2,000 Tax Credit (that’s right, a “credit” not a deduction) per qualified residential unit that meets the energy efficiency requirements collectively for all three subsystems; Envelope, HVAC/Hot Water, and Lighting. This would be for residential construction of 3 stories or less, typically used for garden style apartments.

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