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The Energy-Efficient Commercial Building Tax Deduction, also known as Section 179D, is a federal incentive designed to promote energy efficiency in commercial buildings. It rewards qualifying building owners and eligible designers for making energy-efficient improvements, with eligible projects including new construction, renovation, and additions.
This includes office buildings, retail stores, warehouses, hotels, and residential properties four stories and above, etc.
Tax-Exempt & Government-Owned Buildings
Tax-exempt organizations, buildings owned by federal, state, local, or tribal governments, including schools, universities, libraries, local municipalities, recreational centers, hospitals, military bases, 501(c)(3) nonprofits, tribal lands, and churches, may allocate the deduction to a qualified designer.
Architects, engineers, contractors, and energy consultants work on energy-efficient upgrades in commercial buildings.
Owners of commercial buildings who make eligible energy-efficient upgrades or improvements to their properties.
REITs that own and operate commercial buildings and make qualifying energy-efficient improvements can also claim the 179D Tax Deduction.
The 179D Tax Deduction, which provides incentives for energy-efficient building design and construction, underwent significant changes as part of the Inflation Reduction Act of 2022 (IRA). For buildings placed into service beginning in 2023, the maximum deduction has increased to $5.00 per square foot, up from the previous limit of $1.88 per square foot. For example, if your qualified project covers 50,000 square feet, you could potentially receive up to $250,000 in tax deductions.
All you need to know about 179D Deduction
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Yes, there is a deadline to consider. For commercial building owners to claim the 179D deduction, the eligible building improvements must have been made after January 1, 2006. For eligible designers of nontaxable property, there is only a three-year look-back period. Therefore, if you’ve made qualifying improvements during this period and haven’t yet claimed the deduction, it’s essential to take action before the deadline.
Yes, you can. For commercial building owners, if your building meets the eligibility criteria and the improvements were made after January 1, 2006, you can still claim the 179D Tax Deduction. For eligible designers of nontaxable property, there is only a three-year look-back period. It’s never too late to explore potential savings.
While the 179D Tax Deduction offers lucrative savings, navigating the complexities of tax regulations can be challenging. Seeking assistance from professionals experienced in energy efficiency and tax law is highly recommended. Engaging with consultants who do not outsource any portion of the study is also recommended for maximizing your deductions. Working with expertise in this area can help you identify eligible projects, accurately calculate deductions, and ensure that all documentation is correctly prepared.
Yes, government-owned buildings and other nontaxable entities do not pay federal taxes, but they are still eligible for the 179D Tax Deduction. However, in the case of government-owned buildings, the deduction can be allocated to the primary designer of the energy-efficient improvements. This designer can be an architect, engineer, contractor, or any other individual or firm responsible for designing the qualifying energy improvements.