Energy Efficiency Tax Benefits
The origin of the Section 179D tax deduction came as a part of EPACT 2005. Congress wanted to encourage green projects, by incentivizing the installation of energy efficient systems in commercial buildings for any of the following parties.
1. The owner(s) of the building
2. The tenant(s) of the building
3. The designer or rehabilitation of an energy-efficient government building. (Architect, engineer, contractor etc.)
Your building is eligible for as much as $.60/square foot/system for HVAC, lighting and building envelope. There by creating a potential deduction of $1.80/sq./ft when all 3 systems qualify to the maximum guideline. The deductions are available for buildings built or retrofit for energy efficiency after December 31, 2005.
Guidance for claiming the EPACT deductions has been provide through additional IRS notices since the bill came into effect. The rules and procedure for ensuring qualification were enumerated under IRS notice 2006-52. This notice describes in detail how a new building or retrofit qualifies.
The IRS notice requires the taxpayer to have the building certified by a qualified inspector, to ensure that it meets the energy efficiency guidelines of 179D. It further specifies what software to use in calculating power and energy usage. Further incentive was provided under IRS Notice 2008-40. The notice allowed government and non taxpaying entities to pass the applicable deduction to the primary designer of the qualifying buildings.
Up to 2011, those taxpayers seeking to claim the 179D tax deduction were restricted by the 3 year statue of limitation for filing an amended tax return. That restriction was lifted through the distribution of Revenue Procedure 2011-14, under which some taxers may bypass the statue of limitation. Under this ruling the deduction may be claimed all the way back to January 1, 2006, without filing an amended return.
Under this Revenue Procedure, applicants qualifying to claim the deduction were allowed to take the the deduction by filing a form 3115 (Application for Change in Accounting Method). The taxpayer can thereby take the entire catch up deduction on the return being filed. Under this rule taxpayers could possibly claim all the deductions from 2006-2012 on one return. Significantly reducing and perhaps eliminating their tax burden all together.
The decision whether to amend returns or file a 3115 form depends on the taxpayer’s situation. If your taxable income has changed to the negative from prior years, lowering your tax bracket, it may make sense to amend the earlier returns. The applicability of Revenue Procedure 2011-14 is also dependent on whether deductions have already been claimed through original or amended returns. Each taxpayer should have their tax professional thoroughly analyze their situation . To determine which approach is most advantageous. Applying the the rule in this manner will allow each taxpayer the maximum deduction allowed under the law.
Schultz Energy Consulting, LLC. Is in the business of certifying buildings for property owners under sections 45L and 179D. You should adhere to the tax advise of your tax professional for the details of filing your return or change of accounting method, form 3115. You can contact Schultz Energy Consulting, LLC at (715)340-2970, or via our website and http://schultzenergyconsulting.com for details of the certification process. We are located in Stevens Point, WI, with associates available for the certification process Nationwide.
In what has become a familiar event in Washington, Congress has allowed a package of more than 55 tax provisions commonly referred to as “tax extenders” to expire on Dec. 31, 2013. Allowing the tax extenders to expire does not necessarily mean these provisions will disappear forever, as Congress frequently fails to deal with them by their deadline and the expiration of these tax extenders has happened numerous times over the past several years. Typically Congress eventually reenacts them retroactively, which will likely be the case again this year.
For energy efficient building tax benefits, the tax extenders that expired at the end of last year include Section 179D and Section 45L.
Energy Efficient Commercial Buildings Deduction
Under Code Sec. 179D, a deduction is allowed for all or part of the cost of energy-efficient commercial building property. The deduction cannot exceed the excess (if any) of the product of $1.80 and the square footage of the building, over the aggregate amount of the energy efficient commercial building deductions allowed with respect to the building for all prior tax years. The basis of that property is reduced by the amount of the deduction allowed. The deduction does not apply to property placed in service after December 31, 2013.
Credit for Construction of New Energy Efficient Homes
Under Code Sec. 45L(g), certain contractors are allowed a credit for constructed or manufactured qualifying energy efficient homes in the year such homes are sold or leased to other persons for use as a residence. The amount of this energy efficient home credit is $2,000 or $1,000, depending on whether the home is constructed or manufactured and on the energy saving standards satisfied. The credit expires for qualified new energy efficient homes sold or leased after December 31, 2013. See Parker Tax ¶107,800.
Consistent with past behaviors, Congress is currently working to resurrect the expired provisions. Senate Majority Leader Harry Reid (D-Nev.), recently introduced the Tax Extenders Act of 2013 (S. 1859), which would extend through the end of 2014 the overwhelming majority of the expired provisions, which unfortunately means Congress will be right back in this will-they-or-won’t-they mess next December.
According to House Ways and Means Committee Chairman Dave Camp (R-Mich.), he intends to look at all the extenders during the upcoming 2014 tax reform debate. Additionally, Senate Finance Committee Chair Max Baucus (D-Mont.) and Ranking member Orrin Hatch (R-Utah) have both stated that extenders should be addressed as part of comprehensive tax reform. However, several Finance Committee Democrats believe that certain critical temporary tax provisions should be addressed now. If a comprehensive tax overhaul moves next year, some of the expiring provisions could be reworked permanently as part of it, while others would be allowed to die.
Extending them all, according to the Congressional Budget Office, would cost more than $938 billion over a 10-year window.
- It is located in the United States;
- Its construction is substantially completed after August 8, 2005;
- It meets the statutory energy saving requirements, and
- It is acquired from the eligible contractor after December 31, 2005, and before January 1, 2014, for use as a residence.