179D Energy Efficient Building Deduction
What is 179D?
The 179D Tax Deduction allows energy efficient building improvements or new building construction to be eligible for a tax deduction of up to $1.80 per square foot. This deduction is available to taxpayers who build new assets or make upgrades to their lighting, insulations or HVAC systems. Additionally, architects and engineers that design energy efficient systems for government owned buildings may also be eligible to take this deduction.
Earning the Maximum Deduction
Energy efficient property must be installed pursuant to a certified plan to reduce energy costs by at least 50 percent. Efficiency measures must not discriminate between fuel sources and the depreciable basis of property is reduced by the amount of the current deduction. To earn the maximum deduction, the energy-saving measures must address all three of the following building components:
- The interior lighting system
- The heating, cooling, ventilation and hot-water systems
- The building envelope, including windows, walls, foundations, slabs, ceiling, roof system and insulation
A partial deduction of up to $.60 per square foot is available for the cost of energy-saving improvements to any of the above systems.
Benefits of 179D
Alternative energy sources are growing and gaining interest, but there are many complicated issues surrounding the planning and execution of these projects. The profitability and viability of alternative energy projects hinges on understanding the tax incentive surrounding projects. McGuire Sponsel can help interpret 179D tax deductions, manage local incentives, perform site analyses, set up power purchase agreements, and assist with other complex issues.
Additionally, due diligence is important as with any large scale construction project. What sites are most lucrative depends not only on the tax incentives, but also on the location of the property. Solar and wind outputs vary significantly depending on the location of the project. As an independent consultant, McGuire Sponsel can review locations to determine energy output and potential payback.