On December 19, 2014 the President signed into law a one-year extension of over 50 expired tax provisions for the 2014 tax year. In addition to the extension of the Research Tax Credit, Bonus Depreciation and 179 expensing limitations, this law also included a one year extension of the 179D Energy Efficient Building Deduction.
The 179D Tax Deduction allows eligible taxpayers to take a deduction of up to $1.80/sf against the depreciable basis of energy efficient property. This deduction is available to taxpayers who build new assets or make upgrades to their lighting, insulation, or HVAC systems. Additionally, architects and engineers that design energy efficient systems for government owned buildings may also be eligible to take this deduction.
The new law keeps in place the same qualification criteria as the previous law. This means that the deduction is still indexed off of the ASHRAE 90.1-2001 standards. This is good news for taxpayers. Earlier extension proposals included making the criteria more stringent. As the law currently stands most properties placed in service during 2014 could be eligible for a deduction. While we are still uncertain as to the status of the deduction in 2015, the extension should give taxpayers comfort during the 2014 filing season.
This deduction can be extremely beneficial for a taxpayer. Take for example a taxpayer that places a 200,000 square foot warehouse in service. If this warehouse meets the qualification standards for a $1.80/sf deduction the taxpayer could have a total tax deduction of $360,000 on their 2014 tax return.
In addition architects, engineers, and consulting firms that did this work for government entities can also access this deduction. Take for example an architecture firm that designed a 150,000 expansion to an existing high school. After reviewing the project, McGuire Sponsel was able to secure a $270,000 deduction for the architecture firm that was worth $108,000 at a 40 percent tax rate.
This deduction can lead to significant savings on the 2014 tax return. If you have any questions or would like to discuss in more detail please do not hesitate to contact McGuire Sponsel.