Owners of energy-efficient commercial buildings have the opportunity for potentially significant income tax breaks, based on the extension of section 179D of the Tax Cuts and Jobs Act (TJCA). The Energy-Efficient Commercial Buildings deduction 179D was part of TJCA in 2017, and was set to expire – but in December 2019, Congress opted to extend the deduction through December 31, 2020. That creates potential for significant tax savings for owners of energy-efficient properties.
What Does 179D Mean for Energy-Efficient Building Owners?
179D may allow a deduction of up to $1.80 per square foot, in the form of a one-time accelerated depreciation for taxpayers who own energy-efficient commercial buildings and who cannot accelerate deductions on these properties through expanded bonus depreciation opportunities under the TCJA. They must also meet the following requirements:
- Own energy-efficient commercial or multifamily properties including retail, office, industrial, warehouses, and apartment buildings
- Install upgrades to their building’s interior lighting systems, heating, cooling, ventilation, or hot water systems
Designers and Builders of Government-Owned Buildings May Benefit, Too
Eligible designers and builders of municipal projects, such as architects and engineers can also take advantage of this deduction. Given that government entities are not generally subject to income tax, 179D allows for the owners of these buildings to allocate the tax savings to the businesses responsible for these energy-efficient improvements.
Examples of government-owned buildings that may qualify include government offices, schools, airports, post offices, courthouses, military bases, and other government-owned buildings.
To qualify, designers and builders of government buildings need to obtain an allocation letter that allows the government owner to transfer this tax benefit, in addition to the third-party energy tax study.
How to Qualify for the 179D Deduction
The 179D deduction can be taken for energy-efficient commercial building property placed in service during all open tax years. The look-back period is typically three years, but there are some exceptions, and it’s important to know that the IRS requires an independent, third-party energy tax study.
Make the Most of 179D Deduction Potential
If you believe your business might qualify for the 179D deduction, connect with us – our professionals can help you navigate the landscape and identify the best strategy for maximizing the 179D deduction if it applies. We can help you minimize your tax liability with a 179D certification for your responsible, energy-efficient property. Get in touch, and let’s talk. We’re here to help.