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Found Money: 179D Tax Benefits for Building Owners, Designers, Architects, & Contractors
The Government offers tax benefits to commercial building owners and designers who renovate or build energy efficient buildings. If you are a building owner or a designer of public buildings, learning about 179D is like finding free money!
EPAct (from the Energy Policy Act of 2005), or 179D, is a widely unknown incentive program created to stimulate investment in energy-saving technologies. The Emergency Economic Stabilization Act of 2008 extended and enhanced this program to promote energy-efficient design practices in the public building space. Because public entities do not pay taxes (schools, federal, state, municipal, civic, correctional, etc), the designers of these buildings (new or renovated) became the tax beneficiary.
With a little accounting and engineering assistance, commercial building owners and public building designers are discovering literally millions of dollars monthly for their energy efficient building renovations and new constructions. 179D helps reduce the ROI of these projects – sometimes by up to 45% – which makes a big difference in moving these projects forward.
But still, over 95% of this program’s potential beneficiaries are missing out!
Commercial buildings (both new and renovated) can claim up to $180,000 for every 100K square feet of building space impacted. These are tax deductions (not credits), which help the owner, tenant, and/or the designer of Public buildings to reduce the costs of energy-efficiency investments. Note that these incentives are available for past projects completed after the beginning of 2006 and future projects through the end of 2013.
Commercial buildings, whether new, recently purchased, retrofitted, expanded, or renovated often qualify when lights, HVAC, and/or building envelope systems have been improved, as compared to the ASHRAE/IES 90.1-2001 building standards. The only gray area is non-profit commercial buildings, which are tax-exempt but are also not public buildings.
Why are 95% not collecting?
These tax incentives must be verified and certified by an independent, unrelated, third party through an engineering analysis. Performance levels for lighting, HVAC, and building envelope are each modeled using Department of Energy and IRS approved software, then benchmarked against ASHRAE 90.1. Under the “Whole Building” method, the building can qualify for up to $1.80 per square foot when all three systems meet or exceed a collective 50% improvement level compared with the standard; however, each system also can qualify individually. Improvements are not compared to the existing systems, but to the ASHRAE benchmark. In short, it does not matter how well or poorly the pre-existing systems had functioned.
By themselves, lighting (and/or HVAC and/or building envelope) can qualify individually for up to $0.60 per square foot. Current guidelines require a 20% improvement in lighting compared to the ASHRAE 90.1-2001 baseline. Individual spaces within a building can qualify and get part of the $0.60 per square foot, depending on the lighting power density in each area; this applies only to lighting.
This means that for each compliant system, there are up to $60,000 in deductions for every 100K square foot building for tax-paying private building owners or for the designers and architects of public buildings.
New buildings, LEED buildings, and Energy Star® certified buildings are all excellent indicators that lighting and other systems will qualify. Other factors include current state/local building codes, and many new technologies employed. The continuous improvement of energy-efficient technologies allows for many more buildings to qualify additional systems, even without having considered 179D during the initial design phase. Keep in mind that the ASHRAE 90.1 baseline is now 11 years old!
For owners, architects, designers, and turnkey installers, the results can appear on your tax return! It’s important to find a reputable provider who has the proper qualifications and experience. An experienced engineering firm is crucial, as this is not an accounting analysis.
A good track record with IRS audit defense, as well as sufficient errors and omissions insurance are also a plus. Some companies also offer free educational programs on the topic and are accredited by the AIA, USGBC, NCQLP, and NSPE.
If you are a building owner or a designer of public buildings, learning about 179D is like finding free money!
About the Author
Jim Sorensen is an energy tax specialist with a background in energy efficiency consulting. As director of business development for Engineered Tax Services he writes and presents frequently on 179D Energy Tax Deductions, among other tax benefits. Connect and follow him on LinkedIn or contact him directly for a list of in-depth educational programs on this topic.