Did you know, that the Consolidated Appropriations Act allows for a tax deduction on commercial buildings of up to $1.80 per square foot for energy-efficient features of the buildings construction? This article gives the details of several energy efficient tax incentives that can help you save this tax season.
In December 2020, the Consolidated Appropriations Act was enacted to permanently extend tax savings opportunities for energy efficient improvements placed. For commercial buildings, the Consolidated Appropriations Act allows for a tax deduction of up to $1.80 per square foot for energy-efficient features of the building’s construction or retrofit under IRC §179D. Commercial buildings also include multi-family residential buildings with more than three stories. For instances where a non-taxpaying entity, such as the government or a municipality owns the building, the Act allows for the primary designer, typically the architects and engineers, to claim the deductions.
Areas qualifying for a tax deduction
To claim a tax deduction under the Consolidated Appropriations Act, three different areas qualify for a tax deduction of up to $.60 per square foot for each area. These areas include interior lighting systems, HVAC, and the building envelope (defined as the perimeter of the building including the roof, walls, windows, doors and floor/foundation). The deductions apply to buildings or systems placed in service or remodeled starting in calendar years 2018 and has been extended permanently. To qualify for those deductions, a project—whether an entire building or one of the three subsystems—must cut energy use compared to the limits specified in ASHRAE 90.1-2007.
Interior lighting systems get a lot of the attention
Of the three areas available for these tax incentives, the one drawing the most attention is interior lighting systems. With substantial improvements in recent lighting product efficiency, most products currently available meet the requirements of the Consolidated Appropriations Act. The incentive for lighting systems can also be taken advantage of without energy modeling, which is required by the two other areas. Owners of commercial buildings have the opportunity to take advantage of the combination of savings from the energy efficient lighting and the savings from the tax incentives available. To demonstrate the economic benefit of a commercial building that qualifies for the maximum deduction for lighting systems, a 100,000 square foot building will generate an immediate federal tax deduction of $60,000 and in most states an additional $60,000 state deduction.
How to qualify for these deductions
In order to qualify for these deductions for commercial buildings, a certification must be obtained by an engineer or contractor that is properly licensed as a professional engineer or contractor in the jurisdiction in which the building is located. Dean Dorton has the resources available to provide you with this certification and walk you through the cost/benefit analysis of taking advantage of these tax incentives.
CONTACT US
Brandi Gillen, CPA
Tax Associate Director
bgillen@deandorton.com • 859.425.7678