Energy Efficiency for Residential Property

When most people think of §179D, residential real estate does not typically come to mind. Multifamily residential buildings, which are four stories or higher and that incorporate energy efficient designs, can qualify for the §179D tax deduction. This tax deduction provides a deduction of up to $1.80/SF for taxpayers meeting specific energy-efficient building requirements. Residential property includes a wide variety of categories including high rise towers, multi-use properties, dormitories, and garden style complexes.

Property Type

Residential Property (4 stories or higher above grade)

When most people think of §179D, residential real estate does not typically come to mind. Multifamily residential buildings, which are four stories or higher and that incorporate energy efficient designs, can qualify for the §179D tax deduction. This tax incentive provides a deduction of up to $1.80/SF for taxpayers meeting specific energy-efficient building requirements. Residential property includes a wide variety of categories such as high rise towers, multi-use properties, dormitories, and garden style complexes.

Case Study – Multi Family Apartments

Facts

Execution

The Source Advisors §179D engineers were engaged to analyze and certify the building as per §179D guidelines. They reviewed the building’s envelope, interior lighting, HVAC, and service hot water systems and modeled them using an IRS approved software. The proposed building energy costs were compared to the ASHRAE 90.1-2007 reference building.

The engineering team thoroughly evaluates various qualifying methods (full building qualification, partial qualifications, and Interim Lighting Rule) to calculate the maximum tax deduction that the building would qualify for.

For the subject property opting for Interim Lighting, the tax deduction varies linearly from $0.30/SF at 25% savings to $0.60/SF at 40% savings. The report provides a complete and detailed description of our analysis, results, techniques, definitions, assumptions, and limiting conditions. Our results were based on information that was provided to us and includes, but is not limited to, drawings and specifications.

The parking garage is a special case.
HVAC and the building envelope are typically not relevant to garages since they are often exposed, unconditioned attached or detached spaces; however, IRS Notice 2008-40 states that a garage space falls under the Interim Lighting Rule. Energy efficient lighting alone can help achieve a substantial deduction. The large square footage of parking garages and their low levels of lighting make them outstanding candidates. The subject building’s 14,087 square foot parking garage qualified under the Interim Lighting Rule.

Result
Based on the energy model and the site inspection, Source Advisors qualified the subject property for the Envelope and Lighting systems.

The envelope managed to achieve 11.4% savings thereby qualifying it for $0.60/SF or $22,366.

The interior lighting system in the building qualified under the Interim Lighting Rule. The proposed Lighting Power Density (LPD) was 0.42 W/SF compared to 0.7 W/SF as per the Building Area Method for apartments under Table 9.5.1 of ASHRAE 90.1-2007. This resulted in an LPD reduction of 40.4% and qualified for a tax deduction of $0.60/SF or $22,366.

Additionally the parking garage which is 14,087 square feet, qualified under the Interim Lighting Rule. The proposed Lighting Power Density (LPD) was 0.17 W/SF compared to 0.3 W/SF as per the Building Area Method for apartments under Table 9.5.1 of ASHRAE 90.1-2007. This resulted in an LPD reduction of 44.4% and qualified for a tax deduction of $0.60/SF or $8,452.

The total §179D tax deduction for the property was $53,184.