179D Energy Efficiency Tax Deduction for Designers
Architects Can Claim EPAct §179D for Energy-Efficient Designs
Many architects are not aware that their sustainable building designs may qualify for the EPAct §179D tax deduction. As part of the Energy Policy Act of 2005, EPAct §179D provides a tax deduction of up to $1.80 per square foot for designs that reduce the total energy and power costs by 50 percent or more when compared to an ASHRAE 90.1 reference building. ASHRAE 90.1-2001 is the reference standard for buildings and systems placed in service before January 1, 2016. Buildings and systems placed in service in 2016 will be compared to ASHRAE 90.1-2007.
As of January 1, 2006, the IRS began allowing the architecture firm in charge of a building’s design to claim this deduction for certain energy-efficient features in public schools and universities as well as government and municipal buildings.
Eligible building systems include:
Lighting ≥ 25% = $0.60
HVAC ≥ 15% = $0.60
Envelope ≥ 10% = $0.60
If your design doesn’t meet the 50 percent energy savings, it could still qualify for a partial deduction. For example, if only one of the three areas meets the criteria, the building will qualify for a $.60 per square foot deduction. If two of three areas qualify, a $1.20 per square foot deduction applies.
For partial deductions, the requirement for the building envelope is a 10% improvement. For HVAC/hot water systems, the improvement must be 15% and lighting must reach a 25% percent threshold. Each of these areas requires energy modeling.
In addition, the IRS provides interim lighting rules as an alternative method of evaluation. These rules allow a watts per square foot calculation or a lighting power density calculation to be used in lieu of modeling when measuring energy efficiency.
Interim Lighting Rules
25% to 40% = $0.30 to $0.60
If the lighting is 25-40 percent more efficient, the deduction will be between $.30-.60. The interim lighting rules require incorporation of a bi-level switching component and an automatic shut off provision.
A firm has the ability to go back three tax years to claim the EPAct §179D deduction. These deductions are exercised on amended tax returns potentially generating a refund from the IRS to your firm’s principals.
In order to take the §179D tax deduction the IRS stipulates that:
- An unrelated Professional Engineer or licensed contractor must perform a site visit and complete the certification.
- The professional certifying the property must be licensed in the state in which the property resides.
- IRS-approved software must be used for modeling.
As a leading provider of EPAct §179D consulting, SourceHOV | Tax:
- Has a working knowledge of the tax code
- Will consult with your CPA
- Will provide support in the event of an audit