The The Energy Efficient Commercial Building Tax Deduction, IRS 179D, also called EPACT, was designed to reward owners of commercial buildings who now must comply with higher energy efficiency standards.
Under the 2005 Energy Policy Act (EPACT), a tax deduction of up to $1.80 per square foot is possible for the business owner or developer. The 179D Tax Deduction specifically applies to those
commercial buildings that reduce their interior lighting energy costs, as well as heating, cooling, and building envelope. Buildings can partially qualify for $0.60 for HVAC, $0.60 building envelope, and $0.60 Lighting. Schultz Energy Consulting can help you from design to certification assuring that you take the most advantage of the federal tax incentives for energy efficient construction. Schultz Energy Consulting can perform all energy analysis, site inspections and prepare all the documentation required by the IRS.
Builders and developers can claim this deduction for buildings completed before January 1st, 2017. The 179D tax deduction can be claimed retroactively for earlier buildings back to 2006.
How much is the deduction?
Up to $1.80 per square foot total deduction:
up to $0.60/ sq ft for lighting
up to $0.60/ sq ft for HVAC
up to $0.60/ sq ft for building envelope.
Public Buildings - The owner may allocate the deductions to the Architect, Engineer, Contractor, or Energy Consultant.
Residential Buildings four or more stories
Private, Non-Profits and other entities that do not pay Federal taxes are ineligible
New or retrofitted commercial buildings with a 50% reduction in energy use over the ASHRAE 90.1-2001 standards for lighting, HVAC, or building envelope. Each system can qualify separately.
New buildings and existing buildings with energy efficient improvements placed in service after January 1, 2006 and before January 1, 2018.
The unused deduction can be carried forward up to 20 years
Qualifying Building Requirements
Newly Constructed Medical Building
This 83,200 sq. ft medical building with a 53,400 sq. ft. parking garage engaged Schultz Energy Consulting to perform a 179D feasibility study to determine if the property would qualify for the 179D Tax Deduction. The property owner implemented extra efficiency measures including T8 lamps with electronic ballast and occupancy sensors and controls, along with energy efficient wall systems and HVAC equipment. The propery owner was pleased to receive the full $1.80 per sq. ft. tax deduction.
The 3-story parking garage received an additional $0.60 per sq. ft. for installing LED lighting. The total tax deduction the property owner received for the entire project was $181,800.
Located in the United States.
Construction or energy efficient improvements placed in service after January 1, 2006.
Must be a Federal Tax-paying entity or a government unit.
Meets the energy savings requirements of Code Section 179D. Commercial buildings must meet a 50% reduction in energy use over the ASHRAE 90.1-2001 standards for lighting, HVAC, or building envelope. Each system can qualify separately. A building that does not qualify for one system may qualify for another system.
The tax deduction must be claimed in the year the property was placed in service, but it is possible to amend tax filings up to three years after they were filed.
However, in January 2011, the IRS issued Revenue Procedure 2011-14 that provided an alternative accounting method. Rather than amending tax returns, clients that have not previously taken the deduction may go back as far as 2006 and claim the deduction on their current year’s return using a Form 3115. A certification report and allocation letter must be filed with the Form 3115.
The tax deduction can be carried forward 20 years.
The basis of the energy efficient commercial building property is reduced by the amount of the § 179D deduction taken and the remaining basis of the energy efficient commercial building property is depreciated over its recovery period.