With the key goal of encouraging businesses to engage in greener practices and initiatives, the Commercial Property Owners and Leaseholders Energy Efficiency Tax Deduction, or 179D, is primarily intended for small- to medium-sized commercial companies. Maybe you’ve heard of or read about this code, but what can it mean for you professionally?
Originating with the Energy Policy Act of 2005, Section 179D rewards business owners, engineers, and architects who can show certifiable proof of their involvement in energy improvements through write-offs. Seeing as how commercial structures in the United States use roughly 70% of all electricity, there are many, many ways these can be applied to you.
While legislation has varied over time regarding green building and design practices, the outlook for this particular deduction is excellent. According to the American Institute of Architects in April of 2016, “The House and Senate passed a two-year extension of [179D] policy that encourages the design and construction of buildings that are energy efficient.”
While you’re getting the general idea of how this works, here is a list of structures that might qualify. They include:
- Various types of commercial construction
- Parking decks
- Municipal buildings
- Residential (four stories or higher)
- Factories
- Warehouses
Understanding the 179D deduction has real potential to save your firm or personal business a great deal through a myriad of implements. Here are five ways 179D saves energy while also saving money on your taxes.
What Exactly Qualifies?
Approved equipment and applicable items, designs, and tools eligible include:
- Lighting, heating, and hot water systems
- Ventilation
- The building envelope
- Used software
Another important factor is that new, as well as used items, can be deducted.
Building Size
The size of the building is factored into the level of deduction calculated when applying for 179D. Between $0.60 per square foot to $1.80 per square foot is allowed when tallying write-offs of this nature. As of 2016, there is an overall $500,000 mandatory cap. Additionally, there is a $2,000,000 cap for equipment costs.
Percentage of Efficiency
While it is required that a commercial structure meet or exceed a 50% energy efficient power compared to a baseline building to get the maximum allowed write-offs, 179D can also include systems that only partially qualify.
For example, HVAC systems need to meet only a 15% savings mark to be eligible for $0.60 per square foot. This also applies to a 25% savings for lighting and 10% for the building envelope system.
Certification
According to irs.gov, “Certification must be obtained to verify that the property installed satisfies the energy efficiency requirements of section 179D.” It is also important that you, the taxpayer, get said certificate before claiming your deduction.
To be eligible, a contractor or engineer must analyze the edifice in detail, on-site as well as through modeling, and award a designated compliance certificate.
Government Buildings
While government buildings are not eligible for the 179D tax deduction, architects, engineers, and possibly even contractors involved in the property designs individually can be. Per the IRS, certain deductions are allocated to those who have designed municipal buildings that meet the efficient standards defined in these regulations.
Aside from a letter from the government agency in question, these detailed energy savings must also be certified by a third party. According to the tax code, you can retroactively claim work you have done up to three years prior.
45L Tax Credit
Also notable, the 45L Tax Credit applies for owned and occupied, as well as rental, units or “dwellings.” Housing is three stories or less and consists of one room or more, a kitchen, and is intended for general living, sleeping, and sanitation. The 45L Tax Credit allows upwards of $2,000 for each unit or home.
Information about the individual differences between 179D and 45L can be found here.
Walker Reid Strategies
This may be great news to you, but unless you are an expert on the Federal Tax Code and its criteria, you might feel lost in this process. If you are interested in accessing your full range of deductions when filing taxes for this upcoming season, consider conferring with the consultants at Walker Reid Strategies. Not only will Walker Reid assist in gauging the level of efficiency on your business, property, or design, we will also handle the paperwork, organize on-site inspections, and conduct audits using our team of seasoned engineers.
Tax incentives, while helpful to our businesses, are often as daunting as they are complex. Hiring Walker Reid Strategies as your professional consultants for advisement on policies and practices ensures you are precisely guided through tax law while receiving the largest appropriate deductions for your company.
As a business, you need to make sure you are receiving the maximum write-offs and that they will be reviewed in meticulous detail and explained to you during this entire process. Don’t make the mistake of allowing these benefits to go unused when you should be saving. Trust Walker Reid Strategies experts to get the job done.
If you’re interested and want to find out more, have a look at our Complete Guide To 179D Tax Deduction to learn how Walker Reid Strategies can help you during the next tax period and contact us for further assistance on this matter.
