February 17, 2020
Energy Efficient Tax Credits and Deductions are Extended!
Efficient Tax Credits and Deductions for Sections 179D & 45L
As part of the Tax Extender Package, both the 179D, Energy Efficient Building Deduction, and 45L Tax Credits have been extended through 2020. Both of these provisions have been expired since 2017.
179D Energy Efficient Commercial Building Deduction
The 179D provides up to $1.80 per square foot tax deduction for energy-efficient commercial buildings. The tax deduction is based on the area of the building and not on the dollar amount expended.
The energy savings categories include the following:
• Interior lighting retrofits,
• Building envelopes (windows, roof, insulation, ceilings, etc.)
• Heating, cooling, ventilation, and hot water systems
In addition, the heating, cooling, ventilation, or hot systems must reduce the building’s total energy and power cost by 50% or more in comparison to the building minimal requirements set by ASHRAE standards. The tax deductions from these buildings can be carried back to two years or can be carried forward for up to 20 years.
Who Can Qualify
179D is available to building owners and leasees that make eligible energy-efficient improvements to their commercial properties. These buildings include rental buildings, office buildings, industrial buildings, apartment buildings at least four stories, and warehouses. Government-owned buildings also qualify. The government entities that own buildings may elect to allocate the deduction to the designers.
Examples of eligible designers and builders are architects, engineers, contractors, environmental consultants, and energy service providers. These professionals that have enhanced the energy efficiency of a new government building, or made energy-saving reservations to existing government buildings can claim to the deduction. An entity or individual who installs, repairs, or maintains the property isn’t considered a designer for purposes of the deduction.
A government entity that owns buildings at the federal, state or local levels can potentially qualify for 179D, including schools, state universities, libraries, town halls, airports, transportation facilities, post office offices, courthouses, military bases, and government offices. However, an independent third-party firm is required to review the building to confirm the energy savings for the potential tax deduction. In addition, a requirement for businesses that are seeking 179D eligibility for services rendered to government property needs to secure an allocation letter that allows a government entity to transfer the benefit to the taxpayer.
Eligible 45L Tax Credit Apartment Buildings and Condominiums
This tax legislation extended the Energy Efficient Home Credit to developers of energy-efficient homes and apartment buildings. The 45L tax credit offers $2,000 per dwelling unit that is certified to have an annual level of heating and cooling energy consumption at least 50% below the annual level of heating and cooling energy consumption of a comparable dwelling unit. All residential developments and apartment buildings completed within the last four years are worth considering for potential tax credits.
Who Can Benefit
Homebuilders and multi-family developers can especially benefit from the credit. Consider the following types of projects for the credit; affordable housing, apartment buildings, assisted living facilities production, home developments, residential condominiums, student housing, substantial reconstruction, or rehabilitation projects. Homebuilders and developers can still claim the 45L tax credit retroactively if they did not claim them on previous tax returns.
The process and basis for developing and supporting the 45L tax credit is a detailed energy analysis that must be certified by a qualified third-party.
Please contact a member of the Wilke & Associates to assist you with understanding the 179D deduction and 45L tax credit.
Maria is a partner at Wilke & Associates servicing closely-held businesses in manufacturing, real estate, transportation/logistics, and technology industries as well as high net worth individuals and executives in delivering effective tax strategies.