Section 179D Energy Efficient Commercial Buildings Deduction
The Energy Efficient Commercial Buildings Deduction allows building owners to take a tax deduction for part of the construction or renovation costs if the building is energy-efficient. Under IRS code section 179D, costs that would typically be capitalized and depreciated over many years can be deducted in the current year. The deduction is the lesser of the actual qualified costs or $1.80 per square foot. To qualify, the building or its eligible components, such as HVAC, building envelope, and LED lighting, must achieve 50% energy savings.
Learn how you can maximize your 179D Energy Efficient Commercial Building Tax Deduction
What is Section 179D Energy Efficient Commercial Buildings Deduction?
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The Energy Efficient Commercial Buildings Deduction allows owners of buildings that are constructed or substantially renovated in an energy-efficient manner to take a tax deduction for a portion of the building cost. Under internal revenue code section 179D, building costs that would otherwise be capitalized and depreciated over many years can be deducted in the current year.
The deduction is the lesser of actual qualified costs or $1.80 per square foot. The building or certain eligible components must achieve a 50% energy savings to qualify for the deduction. Eligible components systems include HVAC, building envelope (e.g. windows), and LED lighting.
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Owners of commercial buildings can take the deduction. However, in the case of buildings owned by entities that do not pay income tax, the deductions can be transferred to the architects, contractors, or engineers involved in their construction. Examples of such properties include buildings owned by governmental entities, non-profits, churches, schools, etc.
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In order to claim the deduction, the eligible building components must be tested and certified to meet the IRS standard for energy efficiency. This is accomplished via a written report that provides all the required documentation, including certification by a qualified professional engineer.
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CCSS has a staff of qualified professional engineers and CPAs that can perform the analysis and provide the report needed to take the deduction. If you are an architect, contractor, or engineer, we can help you obtain an allocation letter from the building’s owner that will assign the deductions to you from any tax-exempt client projects.