179D Energy Efficient Roof Tax Deduction
Since 2006, IRS Section 179D has permitted qualifying buildings to receive tax deductions for energy efficiency. In general, roofing professionals have been unaware of this tax break and, as a result, have not taken advantage of it. Here’s a look at the 179D Roof Tax deduction, some reasons why it has been overlooked
What is Section 179D?
Enacted under the Energy Policy Act of 2005, Congress added Section 179D as an “energy efficient commercial building deduction.” It was intended to serve as an incentive for the public and private sector to build energy efficient buildings. Overall, the provision allows for a tax deduction of up to $1.80 per square foot for buildings that meet certain energy usage reduction criteria. More importantly for roof designers and installers, the section allows for a “partial deduction” of $0.60 per square foot for three individual categories, one of which is the building envelope, including the roof.
A variety of different factors go into determining if the roof system will meet the energy savings criteria. In the Northern climate zones roofing systems with increased insulation values as well as vegetative roofing systems are going to have potential to exceed the energy saving criteria of 179D. In Southern climate zones (which typically include Fl, TX, as well as southern portions of AL, GA, LA, MS, AZ, CA) cool roofs and insulated systems typically are good candidates to qualify for the energy saving targets established in 179D.
In order for a building envelope to qualify for the deduction, the IRS requires a software simulation to model the annual energy cost savings for the building compared to a theoretical reference building. This study has to be completed and inspected by an independent engineer.
When Section 179D was introduced, the building envelope had to produce a nearly 17 percent reduction of combined energy use from the building’s HVAC and lighting systems. This proved to be a difficult target and in 2008 the IRS issued a notice that reduced the requirements to 10 percent with the hope of stimulating use of the 179D Roof Tax Deduction.
What Does This Mean?
Once the lower, 10-percent threshold was permitted by the IRS, engineers and tax specialists recognized that the benefits that have been available to other industries were now accessible to roofing contractors. While a few roofing companies have benefited from millions of dollars in tax savings through Section 179D Roof Tax Deduction, many millions of dollars more remain unclaimed by roofing companies that have installed new roof systems.
Roofing Factors which Significantly Affect the Energy Model Savings
When modeling a building to qualify for the envelope category only, the DOE has provided guidance allowing for the 2 buildings (the taxpayer’s and the ASHRAE baseline building) to be identical in all its systems other than the envelope system itself. This allows an analysis on how the new roof system along with the existing walls, windows, and building orientation affect the energy consumption of the baseline building.
According to professional roofing services, the following are key factors which aid in qualifying roof systems for the 179D Roof Tax Deduction.
- White Roofs – Roofs with high solar reflectance in hot climate zones such as all of Florida and parts of TX, LA, AL, and GA, will reflect significant savings in energy costs.
- High Thermal Emittance – Membranes and other products with high thermal emittance also reflect energy savings through it’s’ “heat rejection” properties in hot climates.
- Insulation – Higher R-Values in any of the envelope systems will increase energy savings in hot and cold climate zones.
- High Loads on Envelope and Building Geometry – Because the energy model depicts the energy savings on the HVAC system, other envelope characteristics such as existing wall construction and window-to-wall ratios can play a significant role. In general, buildings with envelope characteristics which weigh heavily on the HVAC loads are good candidates to exemplify the savings of the envelope system on the whole building.