Many building owners and designers are moving towards “greener” pastures, but renovating and building environmentally friendly buildings can be costly. To incentivize more eco-friendly design, the United States Government has implemented Section 179D into the Internal Revenue Code.
The Energy Efficient Commercial Buildings Deduction (IRC Section 179D) was created in 2005 to incentivize buildings and architecture firms to update building envelopes into compliance with American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) Standard 90.1.
Section 179D and ASHRAE Standard 90.1 look at the building envelope, HVAC, hot water, and lighting to determine tax deductions for building owners and managers. Section 179D gives a tax deduction of $1.80 per square foot for reducing energy and power cost by 50 percent or more compared to ASHRAE Standard 90.1 (per the Environmental Protection Agency)
Buildings put into service before January 1, 2016 apply ASHRAE Standard 90.1-2001, and those built on or after this date apply ASHRAE Standard 90.1-2007. If the building achieves certain milestones in heating and cooling systems, lighting, or building envelope, they receive a deduction of $0.60 per square foot.
Luckily, the tax deduction was made permanent in December of 2020 and can be used by anyone building or renovating buildings beyond the 90.1 Standard.
If your building was above ASHRAE 90.1 (or hit certain goals) the tax deduction is retroactively applied to all prior years the building complied. Tax preparers can file Section 179D deductions after the National Renewable Energy Laboratory (NREL) has accredited the building as compliant. The Environmental Protection Agency (EPA) has myriad software to test compliance.
Section 179D was recently changed to make the exemption permanent, but H. R. 848 Growing Renewable Energy and Efficiency Now Act of 2021 or the “GREEN Act of 2021” seeks to expand these benefits. The GREEN Act of 2021 looks to increase the incentive of Section 179D to $3.00 per square foot and decrease the 50 percent requirement to 30 percent. The partial tax deduction would increase from $0.60 per square foot to $1.80 per square foot.
The GREEN Act of 2021 retroactively applies to the previous 3 years, so any building currently in compliance will receive the $3 per square foot tax reduction for any years they were above the 30 percent threshold. Going green can be costly, 179D can help.
To stay up to date on news and resources such as this and other topics of importance to the real estate industry, subscribe to the free CRE Insight Journal Newsletter using this link.
179D Commercial Buildings Energy-Efficiency Tax Deduction. https://www.energy.gov/eere/buildings/179d-commercial-buildings-energy-efficiency-tax-deduction
R. Bill 848, The GREEN Act. Sec. 304. https://www.congress.gov/bill/117th-congress/house-bill/848/text#H3BBCB99D641C45B8B5F2E2E54B5C5158
Insights and explanation from Don Davis, Esq., Vice President, Advocacy and Codes, BOMA International