The energy efficient commercial building tax deduction system, otherwise known as EPACT 179D was created by the IRS as a way to reward the owners and lessees of commercial buildings who invested to comply with higher standards of energy efficiency.
If a building has been upgraded to conform to new standards in interior lighting, HVAC or the building envelope, a tax deduction of up to $1.80 per sq ft of floor area is applicable. Those who can take the EPACT 179D deductions are:
- – Owners of energy efficient buildings which are commercial in nature, residential multi-family buildings of at least four stories in height, built or renovated after 2005 and before 2014, buildings which have been converted and are now classified as commercial buildings, and buildings that are used for industrial purposes, although there are certain provisions that relate to process systems.
- – Engineers, architects and designers of energy efficient government buildings.
The 179D tax deduction provides a significant reduction in taxes for those who have renovated their buildings and met the energy efficiency guideless that have been set out. The deduction is a one-time accelerated depreciation that is often poorly understood by many building owners.
To qualify for this tax deduction, the IRS demands that an independent agency or third party engineer certifies the energy tax study.
The energy policy act was created by Congress in 2005 and adopted by the IRS as Code Section 179D; the deduction is only referred to as 179D. The tax deduction is qualified by comparing the building’s efficiencies to 2001 industry standards. The maximum tax deduction is $1.80 but is broken down into three sub-categories:
- – $0.60 for HVAC
- – $0.60 for lighting
- – $0.60 for the building envelope; all these figures are per square foot.
The most advantageous structures are those which are larger than 20,000 square feet and were built after 2005 and before 2014.
There are certain limitations that are applicable. To qualify for the tax deduction, the entire building must meet the criteria; a building that only partially meets the spec is not eligible for any deductions under EPACT 179D.