Combined Tax Strategies Make Energy Efficient Upgrades More Desirable (179D Tax Deduction & Asset Retirement)
Many owners are seeing the benefit of replacing certain building components with energy efficient replacements. Also to lower energy bills, tax incentives can be combined to realize accelerated write-offs and lowering income tax bills.
In 2006, Section 179D – the Energy Efficient Commercial Buildings Deduction was available to taxpayers, allowing immediate deductions up to $1.80 per square foot for installed components where certain energy efficiency standards were met. This provision was extended through 2013 and is included in the proposed extenders package for 2014.
Additionally, new tax regulations include a provision to isolate the costs of a retired building component and to take a loss on the disposition for the remaining basis in that component. This allows a taxpayer to not only take advantage of the 179D deduction, but to write off the retired asset.
Here is a simplified example: A taxpayer replaces 300 high-pressure sodium light fixtures that were placed into service in 1998 with LED replacement lights. The LED lights are certified to qualify for a $50,000.00 Section 179D deduction. Also, it is determined that the remaining basis in the sodium light fixtures is $60,000.00, which can be deducted as a loss. Combining the two strategies, the owners not only benefit from better lighting and lower energy costs, they have $110,000.00 in tax deductions that would have been spread over the next 20 to 40 years without the provisions.
Walker Reid Strategies is equipped to provide 179D certification for energy efficient lighting, HVAC, and building envelope improvements, as well as Asset Retirement basis calculation studies.
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