§179D Tax Deductions with Source Advisors
If your company builds, owns or leases commercial buildings, and you have installed or retrofitted the property to be more energy-efficient, you may be eligible to deduct all or part of the costs associated with the installation or retrofit.
What is the §179D Tax Deduction?
Commercial building owners and designers of public building projects that incorporate certain sustainable building components can qualify for the EPAct §179D tax deduction. Starting in 2023, the designers of tax-exempt-owned energy efficient building projects can also qualify for the §179 tax deduction.
As energy costs rise, reducing those costs is a priority for most public and private organizations.
Source Advisors helps building owners and design firms understand and fully leverage this incentive.
What are the Benefits of the §179D Tax Deduction?
Under Section §179D of EPAct, energy-efficient building owners and designers can have significant cost savings by qualifying for this tax deduction. Building owners and designers of public projects can potentially receive a full deduction of $1.88/SF or a partial tax deduction of $0.60/SF for lighting, HVAC, and building envelope.
How Building Owners & Designers of Public Projects Use the EPAct §179D Tax Deductions
If your company builds, owns or leases commercial buildings, and you have installed or retrofitted the property to be more energy-efficient, you may be eligible to deduct all or part of the costs associated with the installation or retrofit.
The company or person that makes the expenditures for construction is generally the recipient of the §179D deduction. Usually this is the building owner, except in the case of designers of government-owned buildings, and after 2022 designers of tax-exempt owned buildings.
The deduction can be claimed for projects placed in service after January 1, 2006 by filing a Form 3115 or amending the tax returns.
Many designers are not aware that their sustainable building designs may qualify for the EPAct §179D tax deduction. Energy-efficient building property that is owned by a federal, state, or local government, or a political subdivision thereof, the owner of the property may allocate the §179D tax deductions to the primary designer(s) of the building.
The primary designer is the person who creates the technical specifications for installation of energy-efficient commercial building property for a new building or addition/renovations to an existing building.
A designer may be an architect, engineer, contractor, environmental consultant, or energy services provider.
FAQ’s
What documents are required if my business performed §179D work on a government-owned building?
You would need to obtain an allocation letter from that government entity that transfers the Section §179D benefit directly to you. At Source Advisors, our team handles this process from start to finish on your behalf.
To qualify for §179D energy-efficient buildings deduction, is an independent third-party required to review the building?
You would need to obtain an allocation letter from that government entity that transfers the Section §179D benefit directly to you. At Source Advisors, our team handles this process from start to finish on your behalf.
How do I claim my §179D deduction?
To claim your §179D deduction, the IRS requires your energy-efficient building must be certified as installed as part of a plan designed to reduce the total annual energy and power costs by 50% or more.
Do LED lights qualify for §179D tax credit?
Yes, according to The Energy Policy Act of 2005, LED lighting qualifies for the §179D tax deduction. The tax deduction varies linearly from $0.30 per square foot at 25% lighting power density reduction (LPD) to $0.60 per square foot at 40% lighting power density reduction (LPD). The LPD reduction is determined by comparing with ASHRAE 90.1 standards. For warehouses, this requirement increases to a 50% LPD reduction.
Lighting systems must include automatic controls prescribed in the ASHRAE 90.1 standard and a provision for bi-level switching in all spaces except hotel and motel guest rooms, storerooms, restrooms, and public lobbies. The illuminance levels must meet the minimum requirements as per the IESNA lighting handbook.
Which types of HVAC and/or plumbing qualify for §179D?
The types of potentially qualifying systems or system components include:
- Geothermal heat pumps, high efficiency chillers (generally 0.4 kW/ton or lower).
- Chilled beams.
- Condensing boilers with efficiencies greater than 90%.
- Energy recovery units.
- Water side economizers.
- Cogeneration (not common, but advantageous if available).
- Instantaneous hot water heaters.
- Heat exchangers taking advantage of high efficiency boilers to provide service hot water.
- High efficiency motors with VFDs.
- If HVAC upgrades are being considered, a full system retrofit is almost always required.
What are the considerations for the §179D Building Envelope?
Building Envelopes are the most difficult systems to predict for Section §179D. It is beneficial to keep these considerations in mind:
- Building Envelopes are affected by many variables.
- Climate zone and building area have a large impact.
- Building geometry and orientation.
- Number of floors, surface area to volume ratio.
- Glazing percentages and R-values at roof and walls.
- Typical minimums seen on potentially qualifying buildings.
- Effective R-values of R-30 at roof and R-19 at walls.
- Double paned, Low-E glazing on windows.
- Envelope has the greatest impact in colder climates.
- Very high quality envelopes in hot climates might qualify, but impact is typically much lower in hot.
- Climates compared to colder climates.
- Envelope typically has little to no impact in temperate climates.
What are other factors to consider under §179D building modeling?
Building Envelopes are the most difficult systems to predict for Section §179D. It is beneficial to keep these considerations in mind:
- Solar panels and wind turbines are not considered when modeling for §179D deductions.
- Only building systems are considered in the model. Exterior site lighting is not included in the model.
- Miscellaneous (receptacle) loads are removed from the building energy usage.
- When only modeling a single system (i.e.; lighting, HVAC, or envelope) the other systems are placed at ASHRAE 90.1-2001 baselines.*
- Occupancy/Equipment schedules are from California Title 24.
Who are the ideal candidates for §179D?
- Designers (Architect, Engineer, Environmental Consultant, or Contractor) responsible for the design and specification of public (government-funded) building projects.
- Commercial Building Owners.
Do government-owned buildings qualify for §179D?
Yes, government-owned buildings at the local, state, and federal level might qualify for Section §179D tax deduction. These buildings include: Schools, post offices, state universities, libraries, town halls, institutions, government offices, courthouses, military bases, airports, and transportation facilities.