The last several years have demonstrated a significant upswing in awareness and implementation of green building within our federal government. Congress and recent administrations have consistently supported green construction and a multitude of initiatives that prioritize energy independence. In December 2019, lawmakers approved a budget that included several tax energy extenders, including the Energy-Efficient Commercial Buildings Deduction (179D).
Understanding the Details of Section 179D
Section 179D legislation was initially set to expire on December 31, 2020. However, Congress's recently enacted spending package overrode the pending expiration date, making the program permanent. Understanding some of this permanent deduction's details can help business owners recognize if they qualify for the incentive now, or if Section 179D will influence future professional decisions.
Section 179D: Breaking Down the Basics
In the current legislation, the tax code for Section 179D offers taxpayers a deduction of up to $1.80 per square foot for properties that have been designated as an energy-efficient commercial building property (EECBP). For example, under the 179D code, a 100,000 square foot building may be eligible for a deduction of as much as $180,000.
Energy-efficient properties that qualify for the deduction include the:
- Building envelope
- Interior lighting
- HVAC and hot water systems
To qualify for the Section 179D deduction, owners must have built and renovated their buildings since 2006. The deduction is also available to property owners who have designed or built government-owned construction, including contractors, engineers, and architects.
Who Can Take the Deduction for Government-Owned Buildings?
Section 179D tax code designates the "designer" of government-owned EECBP as being eligible for the deduction. Designer is a broad term. Generally, however, the taxpayer who creates the technical specifics for the energy-efficient property can be considered as the designer. Under this definition, a designer could consist of:
- General contractors
- Subcontractors
- Architects
- Engineers
It's important to note that, according to the legislation, merely installing, repairing, or maintaining the property does not qualify as does not qualify the taxpayer performing these activities as a designer. It is also relevant to recognize that some projects may have more than a single eligible designer.
Who Can Take Advantage of the Deduction for Privately-Owned Buildings?
Section 179D allows privately-owned properties that have been placed in service as of January 1, 2006, to be eligible for the deduction. For privately-owned properties, owners, as well as tenants, may qualify for the incentive.
Claiming the Section 179D Deduction
Taxpayers eligible for the deduction must follow specific criteria as part of the claiming process. When claiming the deduction, taxpayers must show total energy savings that have been certified by a designated "qualified individual" who is an engineer or contractor licensed in the same jurisdiction as the property. Additionally, an onsite property visit is required, and energy modeling must be conducted using technology approved by the Department of Energy.
Contact Acena Consulting Today for More Information
Legislators are constantly implementing modifications, adjustments, and extensions to current tax codes, making it difficult for business owners to stay on top of the best way to protect cash flow and profitability. Acena Consulting can help. We work directly with business owners and financial advisors to help clients optimize their deductions and keep working capital in their operations.
