179D Energy-Efficient Tax Deduction for Commercial Buildings
If your company builds, owns or leases commercial buildings, and you have installed or retrofitted the property to be more energy efficient, you may be eligible to deduct all or part of the costs associated with the installation or retrofit.
The EPAct §179D Tax Deduction provides a tax deduction of up to $1.80 per square foot for the installation of systems that reduce the total energy and power costs by 50 percent in comparison to a building meeting minimum requirements set by ASHRAE Standard 90.1-2001 (for buildings and systems placed in service before January 1, 2016) or 90.1-2007 (for buildings and systems placed in service before January 1, 2017). Eligible building systems include interior lighting systems, heating, cooling, ventilation, hot water systems and building envelope systems.
To qualify for a full or partial deduction, the energy-efficient building property must meet the following criteria. The building:
- must have been placed in service after December 31, 2005.
- must be located in the United States.
- installation made is part of interior lighting systems, HVAC and hot water systems or the building envelope (insulation, exterior doors, exterior windows, roofing material).
- has been certified that installation will reduce total annual energy and power costs by 50 percent or more as compared to a reference building.
- energy and power consumption calculations are based on IRS-approved software programs that compare the subject facility to an ASHRAE Reference Building.
- must be certified by an IRS-qualified professional engineer or contractor licensed in the same jurisdiction as the proposed building.
The company or person that makes the expenditures for construction is generally the recipient of the §179D deduction. The 179D deduction can be claimed for projects placed in service after January 01, 2006 by filing a Form 3115. Usually this is the building owner, except in the case of government-owned buildings.