Maximizing Your Section 179D Deduction Potential

by | Jun 12, 2014 | Business

One of the most important changes in the last two decades has been the increasing awareness of the importance of protecting the environment and lowering reliance on energy. The government of the United States, like several other countries around the world, has passed legislation that provides for businesses and commercial properties that are moving towards increased energy efficiency. In the United States a commercial building owner, architect or a developer is eligible for a section 179D deduction based on the energy efficiency of the commercial building.

What Is The Value of The Section 179D Deduction?

A building, under this legislation known as the Energy Policy Act of 2005, is divided into three subsystems. These include:

  • Building envelope
  • Heating and cooling
  • Interior lighting

A business owner or developer can receive a section 179D deduction of up to $0.60 per square foot of building space per subsystem for a total tax deduction of $1.80 per square foot. However, since there are subsystems a building owner or developer may receiver a section 179D deduction on one, two or all three of the subsystems provided they show noticeable reduction in costs of operation and also energy use.

There are different reductions in energy use required for each system to quality. This ranges from a 10% reduction in the building envelope to earn the full credit to a 25% reduction required by the interior lighting system to earn the full credit.

Who Can Get A Section 179D Deduction?

As mentioned above in the private sector a developer or a business owner can apply for the section 179D deduction. The buildings that are included under this tax deduction can include apartment buildings that are leased to residences and are at least four stories. In addition any commercial building will qualify regardless of the size or specific use, as long as it is a commercial enterprise.

Any time there is a renovation, upgrade or retrofit on a commercial building that leads to energy efficiency as outlined in the Energy Policy Act that building can qualify. The building owner or the tenant may actually get the savings from the tax deduction, which can be significant on larger buildings when all three subsystems qualify.

All government owned buildings can qualify for the section 179D deduction. In these types of buildings the architect, energy consultant, contractor or engineer or any combination of those may receive the allocated deductions.

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