Publish Date

Jan 22, 2020

Extension Granted for the EPAct 179D Tax Deduction

A&M Tax Advisor Weekly

On December 20, 2019, President Trump signed a spending bill that included legislation to extend the Energy Efficient Commercial Building Deduction (Internal Revenue Code section 179D) through December 31, 2020. The extension makes 179D retroactively available for the 2018 tax year and extends availability through the 2019 and 2020 years. This extension provides an excellent opportunity for commercial building owners, as well as architects, engineers and designers, to realize significant tax savings.

What is 179D?

Section 179D of the Internal Revenue Code provides a tax deduction of up to $1.80 per square foot for new or existing buildings who install lighting, building envelope, or HVAC systems that reduce the building’s total energy and power cost by 50% or more in comparison to the minimum requirements set by ASHRAE Standard 90.1-2007. Partial deductions are available for individually qualifying components. There is also a partial deduction for interim lighting ranging from $0.30 – $0.60 per square foot for a 25% – 40% reduction in lighting power density (50% for warehouses).

Who Benefits?

Commercial building owners can earn a deduction of up to $1.80 per square foot for the installation of energy efficient building components in conjunction with new construction or improvements to existing properties. Public entities may allocate the deduction to the “person primarily responsible for designing the property,” which is typically the project’s architect, engineer, or other party responsible for design (the IRS has published guidance on this “primary designer” issue). For the primary designer to qualify for the deduction, a signed allocation letter must be obtained from the public entity/building representative.

How can Taxpayers take advantage of the benefit?

Commercial building owners and designers/architects/engineers of public buildings should examine projects placed in service for all open and future tax years, which could include 2016, 2017, 2018, 2019 and 2020. Most new construction and improvement projects are likely to have some applicability for this benefit.

Alvarez & Marsal Taxand Says…

The extension of the 179D tax deduction allows commercial building owners and designers of public buildings to potentially realize significant tax savings. The nature of the qualifying components is very broad and applies to a large number of improvements. Most new construction or remodels/retrofits should have at least one qualifying component.The above examples of qualifying properties highlight the potential impact of the deduction for the owner/designer and some of the various types of buildings that qualify.

Now that the law is signed, every commercial building owner and designer of public buildings should do the following:

  • Review all new construction and remodels/retrofits placed in service from the 2016 tax year until present.
  • Have the individual components reviewed against the ASHRAE 90.1-2007 standards to determine their energy reductions.
  • Have the benefits calculated, modeled, documented and certified by an engineer.
  • File the necessary tax forms to claim the benefit.