The 179D deduction is part of a federal tax code section that offers incentives for the construction of energy-efficient buildings. Sometimes, the 179D tax deduction can also be used for other types of buildings that are being upgraded to include new energy-efficient features.
A 179d tax deduction offers tax incentives both to the building’s owner and to the architects, engineers, and contractors who design the entire structure. Being a strong motivator for people who choose environmentally safe building attributes, it is also called the Environmental Protection Act (EPAct). Many people have become interested in this tax deduction because it offers a hefty fee discount of roughly $1.80 for every square foot of the building.
As a consequence, it quickly reduces a person’s tax burden, especially if it mixes with other tax credits, namely the Manufacturers’ Energy Efficient Appliance Credit. Individuals who wish to claim this deduction must include unique sustainable building features that support energy efficiency. Some of them include:
- Energy-efficient LED lighting that reduces power consumption;
- Hot water systems that heat water only when needed;
- Energy efficient HVAC systems;
- Insulation and roof shingle in the building envelope to prevent power loss;
- Specialized efficient heating and air conditioning systems;
How Can a Person Qualify For This Deduction?
The types of buildings that are eligible for this tax deduction are commercial buildings, factories, parking garages, warehouses, and family housings that have four or more stories. When it comes to federal, local or state government, examples would include schools, dormitories, university buildings, jails, airport terminals.
If you want to be eligible for this deduction, you are required to work with an outside specialized engineer that will have your building certified to be energy efficient. The engineer will assess the total possible energy savings that could add up for that particular tax year. You may receive the entire tax deduction if the expert engineer decides that there the building saves up to 50% of energy usage due to energy efficient upgrades and features.
If you only go for a few energy improvements, you could still become certified. The engineer will issue a certificate stating that only a certain percentage of your building has been energy efficiency approved. The IRS will let you claim only up to that proportion of the total tax deduction. This possibility is paramount for a small business owner who is short on funds but wants to make partial changes in his building structure to save money on both energy bills and taxes at the end of the year. There are five other ways this deduction is financially beneficial to building owners and architects alike:
High Deduction Limit
The deduction limit for the current year of 2016 is $500,000.00, but this amount could increase over time. If a building qualifies for the whole deduction amount due to a minimum of 50% total annual energy savings from their upgrades, they will receive up to $1.80 per square foot of the building’s full size. In other words, anyone who makes the required energy efficient improvements to their commercial or governmental building is guaranteed to have a chance to qualify for this tax deduction.
Reduced Energy Bills
Commercial buildings have larger than average energy bills simply because there is so much more space to heat and cool down. Trying to keep them at a comfortable temperature can put a huge dent in a building owner’s profit each year. By making the necessary changes to qualifying for this deduction, the monthly utility bills will be significantly reduced. Every energy efficient upgrade and feature will contribute to reducing energy bills by the end of the year. From smart heating systems to automatically turning the light off when it is not needed, every little sustainable change will reduce costs.
The costs of installing these new energy efficient features and equipment are also significantly covered by the annual allowable tax deduction. In addition to reducing power bills, the amount of money you receive if you are eligible for the 179D tax deduction could help you cover the cost of actually setting them in place.
Benefits for Architects, Engineers or Contractors
In some cases, the tax savings benefits go beyond the owner of the building. By law, no government entity has to pay taxes; they are all non-profit groups. But, instead of letting their potential share of the tax deduction go to waste, they can choose to pass those savings to the person that helped design the building’s energy efficient features, which is usually an architect, engineer or contractor. The credit depends on the building’s dimensions and energy efficiency features. In fact, the government created this extra provision to encourage more building designers to add energy efficient features to the projects they design.
The last way this deduction can save a significant amount of money is often one of the most overlooked in all types of tax filings. People can just file a tax amendment. Energy efficient improvements that were made several years ago to a building can still be claimed. This in itself often contributes unexpected dollars back into a person’s bank account.
If you are looking to apply for the 179D tax deduction, Walker Reid Strategies can help you assess your building and see if it is eligible. Contact us and we will help you qualify your building and apply for the credit.