Strategic Tax Credit Utilization: A Game Plan for Building Owners

Building owners are increasingly realizing the advantages associated with the §179D deduction and legacy §45L tax credit. At Walker Reid, we specialize in assisting building owners with these two federal tax benefits for energy-efficient properties. Let’s unravel the specifics of these tax incentives, exploring eligibility criteria, qualifying factors, and the substantial impact they can have on overall property valuation.

Exploring the Hidden Value 

§179D Deduction

The main benefit of the §179D deduction is the large tax deduction available for qualifying energy-efficient improvements made to commercial buildings. The Inflation Reduction Act of 2022 greatly boosted the deduction amount, previously capped at $1.88 per square foot, to up to $5.65 per square foot. This offers building owners a significant financial incentive to consider making energy-efficient renovations to their buildings, which may have previously looked excessively expensive.

To be eligible for the full discount, a commercial facility must substantially lower its energy consumption compared to a theoretical baseline set by ASHRAE 90.1-2007 criteria. The program acknowledges that even modest advancements help ensure sustainability, though. As a result, initiatives that show minimal improvement in particular areas, including:

  • 15% off on HVAC systems
  • 25% save on lighting systems
  • Building envelope systems can save 10%.

§45L Tax Credit 

Under the previous regulations, the Legacy §45L tax credit offered developers a significant chance to profit monetarily from constructing energy-efficient homes. For projects finished before January 1, 2023, qualifying contractors must act swiftly to collect these advantages as the previous §45L tax credit restrictions are being phased away. 

The Residential Energy Services Network (RESNET) or a comparable rating network-accredited independent, approved certifier must certify eligible contractors. This certifying body verifies the energy efficiency of the residential units through on-site testing and computer modeling. After that, they put together an extensive certification package. To be eligible for this tax credit for previous projects, developers must amend their taxes.

Does Your Building Qualify for §179D or Legacy §45L?

Legacy ‍§45L Tax Credit 

  • Projects with units leased or sold before January 1, 2023.
  • Pertains to residential developments 4 stories or less, such as single-family homes, multifamily structures, condominiums, and others.
  • $2,000 per unit Tax Credit

§179D Deduction:

  • Commercial buildings and residential buildings over four stories.
  • New construction or new lighting, HVAC, insulation, and window improvements made to an existing building.
  • The amount deducted is determined by the square footage and degree of energy improvement over the minimum requirements.
  • The maximum potential deduction value increased up to $5.65 per square foot

What Other Advantages Can Energy-Efficient Structures Offer?

Energy efficiency investments have benefits beyond lower tax obligations. Additionally, you’ll like:

  • Lower energy bills: Lower energy usage leads to significant cost savings over the life of your building.
  • Enhanced market value: Green structures draw buyers and renters, increasing the value.
  • Environmental impact: By selecting sustainable solutions, you show your dedication to social responsibility and help create a greener future.

Developing Your Strategy: Seeking Advice from the Experts

Effectively utilizing tax credits requires planning and expert guidance. At Walker Reid, we assist developers and building owners in navigating the complexities of the §179D deduction and Legacy §45L tax credit to ensure they meet the eligibility criteria and optimize the financial benefits.

It’s not just about meeting standards; it’s about strategically utilizing tax incentives to build a more sustainable and financially rewarding future.