179D Tax Credits is a tax incentive for eligible commercial structures. Building owners can deduct up to $1.80 per square foot for energy-efficient commercial and industrial buildings and certain residential buildings with more than four stories. Not only is the incentive offered for brand-new building construction projects, but also for the renovation and modernization of already-existing structures.
The Section 179D tax deduction for energy-efficient buildings is typically claimed by the building owner but can, in some cases, be apportioned to the designers, architects, engineers, and contractors of public buildings.
In 2021, this portion of Section 179D was made permanent as a facet of the Consolidated Appropriations Act. This article will talk more about the 179D Tax Credits and how they can help businesses.
Understanding 179D Tax Credits
In recognition of the significant contribution that commercial buildings make to the overall energy consumption in the USA, the Energy Policy Act of 2005 included a provision that allowed for the creation and implementation of the Section 179D energy efficient commercial buildings tax credit. The federal government wanted to promote the design and construction of energy-efficient buildings by offering an incentive in the form of tax deductions. This was done as part of an effort to lower the nation’s overall energy consumption.
The owner of a building has the ability, thanks to Section 179D of the Internal Revenue Code, to deduct the costs of making energy-efficient improvements in the following three areas:
- Systems for air conditioning, heating, and hot water
- Building envelope
Section 179D Tax Credits Eligibility
In order to be eligible for the Section 179D energy efficient tax deduction (179D Tax Credits), a commercial building must have been constructed on a property within the United States. This incentive is available for use in the construction of new buildings and in the renovation and modernization of existing structures.
How much can be deducted pursuant to Section 179D of the Internal Revenue Code?
The amount that can be claimed is proportional to the amount of energy that has been saved; the higher the energy savings, the higher the deduction, up to the limits that have been established. The deduction cannot be more than the cost of the property that qualifies for it.
You can qualify in one of three different ways: by taking the maximum deduction, by taking a partial deduction, or by following the interim lighting rule. Despite the fact that this makes the incentive more difficult to understand, it nevertheless opens up more opportunities for a greater number of building owners.
Obtaining Eligibility for the Highest Possible Deduction for 179D Tax Credits
Under Section 179D, the maximum allowable deduction is $1.80 per square foot. In order to be eligible for it, the building must meet or exceed a 50 percent savings in energy and power costs as compared to:
- A building that meets the ASHRAE Standard 90.1-2001 for buildings and systems that were placed in service before January 1, 2016
- A building that meets the ASHRAE Standard 90.1-2007. Both of these standards were established by the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) for buildings and systems that were placed in service after January 1, 2016
Being Eligible For A Partial Deduction
It is possible for a building to be eligible for a portion of the 179D Tax Credits deduction even if it does not meet the overall savings requirement of fifty percent:
- $0.60 per square foot – for lighting systems that meet 25% savings
- $0.60 per square foot – for building envelope systems that meet 10% savings
- $0.60 per square foot for heating, ventilation, air conditioning, and hot water systems that achieve a savings of 15%
179D Tax Credits: Interim Lighting Rule
In addition, it is entirely feasible to be partially qualified through the 179D interim lighting rule, which enables a prorated deduction for a reduction of 25–40 percent in lighting power density. This reduction qualifies for a portion of the credit (50 percent for factories).
Who is permitted to file a 179D claim? How does one make a claim for a 179D deduction?
It is not possible for the taxpayer to prepare the claim on their own. In order to validate the savings that are claimed on behalf of the owner, a licensed engineer is required to complete a certification.
When submitting a claim under Section 179, the IRS requires the following:
- Inspection, verification, and certification by a third party in line with Section 179D of the Internal Revenue Code
- Energy modeling using software that is approved by the Department of Energy Allocation letter (public buildings only)
The completion of a Section 179D study usually takes between four and six weeks to accomplish. It is essential to collaborate with the ideal specialty tax partner in order to achieve the most favorable and productive outcome possible. Hire knowledgeable professionals who are experts in engineering-based incentives. You will not only be able to avoid problems with claiming the 179D tax credits, but the entire process will also go more smoothly and significantly reduce the amount of stress you feel.
You can find a lot of highly experienced experts in the field of tax incentives that are engineering-based, including Section 179D, who offer their services to clients throughout the United States. They will be able to assist in the determination of eligibility and the performance of the 179D tax study and will assist throughout the process.
Claiming For The 179D Tax Credits
Experts that can help in claiming 179D tax credits simplify in a revivifying way a process that is otherwise quite complicated.
They will conduct research and offer a free assessment of the feasibility of the project.
Should you meet the requirements and indicate a willingness to move forward, they will follow the analysis and modeling criteria prescribed by the IRS to verify energy efficiency and how much the potential tax savings would be. As soon as everything is finished, they will provide the necessary certification report from a third party.
If you have a committed team of people working on your behalf, the application for 179D Tax Credits for energy-efficient homes or businesses can be finished quickly and without any stress.