Section 179d Deduction | Green Energy Deduction | Commercial Property Deduction

What is the “Green Deduction”, Section 179d?

Part of the Energy Policy Act of 2005, the Section 179d “green deduction” is a tax deduction permitted for the cost of installing specific energy efficient system in commercial buildings, allowing taxpayers to deduct for part or all of the cost of energy efficient commercial building property, or certain partially qualifying commercial building property, that was placed into service after December 31, 2009.

Eligibility
The IRS states that improvements qualify for the full deduction if they reduce total annual energy consumption by 50%, measured based on a standard from 1986. Energy reduction applies only to improvements in lighting, heating, cooling and water systems. In the event that there is a less than 50% reduction, then the IRS allows the taxpayer to take a partial deduction based on the total energy savings.

The following may apply for the tax deduction:

  • Commercial properties constructed or renovated between 2006 – 2013
  • Commercial buildings which have or will receive LEED certification
  • Commercial properties which have utilized “energy efficient” materials in their construction

All improvements must be independently certified by engineering professionals, documenting the upgrades, energy savings, and ensuring overall compliance with IRS regulations. Once the certification is complete the taxpayer may make the appropriate deduction by having our CPAs adjust the current year’s income and expense through the "change of accounting method" and make adjustments to the current or prior year's tax return.

Is your building green?

Section 179D of the Internal Revenue Code was created in order to encourage reduced energy needs of buildings. The 179D deduction allows immediate tax deductions for energy-efficient projects placed in service from January 1, 2006 through December 31, 2013. Energy efficient features may also qualify for utility rebates or state tax incentives. These deductions are generally... claimed by the owner of the building, but in the case of government buildings, the architect, engineer, or design/build contractor may claim the deductions.

Daszkal Bolton works with Engineered Tax Services to determine if a building is eligible. Projects do not have to be LEED certified to be eligible. Private owners of commercial buildings constructed, remodeled or retrofitted during 2006-2013 enjoy the advantage of offsetting taxable income with the 179D deductions.Taxpayers that construct energy efficient property may claim a deduction equal to $1.80 per square foot. A 200,000 square foot building can produce up to $360,000 in tax deductions that can be claimed in the tax year the building is placed into service. Often new construction or remodeled buildings that meet present building codes contain qualified components, which mean the potential to be eligible for 179D benefits are high.

A building's qualifying features typically include:

Lighting systems and controls
HVAC systems and hot water systems
Building envelope

In the case of buildings owned by the government, architects, engineers and design/build contractors may be allocated the deduction by the governmental entity that owns the building. This provides a substantial benefit to the designer because they do not have to incur an outlay of cash to receive the deduction.

To qualify, architectural or design firms must specify energy efficient components and features in government owned buildings during the eligible period. Government buildings include federal, state and local projects such as:

Schools
Police and fire stations
Prisons
College and university buildings
Airport authority facilities
Military base facilities
claimed by the owner of the building, but in the case of government buildings, the architect, engineer, or design/build contractor may claim the deductions.

Daszkal Bolton works with Engineered Tax Services to determine if a building is eligible. Projects do not have to be LEED certified to be eligible. Private owners of commercial buildings constructed, remodeled or retrofitted during 2006-2013 enjoy the advantage of offsetting taxable income with the 179D deductions. Taxpayers that construct energy efficient property may claim a deduction equal to $1.80 per square foot. A 200,000 square foot building can produce up to $360,000 in tax deductions that can be claimed in the tax year the building is placed into service. Often new construction or remodeled buildings that meet present building codes contain qualified components, which mean the potential to be eligible for 179D benefits are high.

A building's qualifying features typically include:

Lighting systems and controls
HVAC systems and hot water systems
Building envelope

In the case of buildings owned by the government, architects, engineers and design/build contractors may be allocated the deduction by the governmental entity that owns the building. This provides a substantial benefit to the designer because they do not have to incur an outlay of cash to receive the deduction.

To qualify, architectural or design firms must specify energy efficient components and features in government owned buildings during the eligible period. Government buildings include federal, state and local projects such as:

 

  • Schools
  • Police and fire stations
  • Prisons
  • Colleges and universities
  • Airport authority facilities

Contact Us

If you would like additional information on how the Section 179d, energy efficient “green deduction”, can benefit your company, please contact us. Click here to be connected to Michael Daszkal, CPA, to learn more.