How does the EPAct §179D tax deduction work for designers?
Many designers are not aware that their sustainable building designs may qualify for the EPAct §179D tax deduction. As part of the Energy Policy Act (EPAct ) of 2005, §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. Buildings and systems will use the ASHRAE Standard 90.1-2001 baseline standard if placed in service before January 1, 2016, and the ASHRAE Standard 90/.1-2007 if placed in service before January 1, 2017.
As of January 1, 2006, the IRS began allowing the 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:
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 percent improvement. For HVAC/hot water systems, the improvement must be 15 percent and lighting must reach a 25 percent percent threshold compared to the ASHRAE standard. 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.