EPAct Sec. 179D

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Maximize and accelerate depreciation and Shield income tax on your LEED Certified, WELL Building, and Green Globes development Projects.  Cost Segregation adds to the "Triple Bottom Line: Economic prosperity (profit), Social responsibility (people), Environmental stewardship (planet)",

The Energy Policy Act of 2005 Commercial Buildings Tax Deduction under Sec. 179D of the Internal Revenue Code was made permanent in the 2020 SECURE Act.  Sec. 179D provides a 1-time tax deduction and corresponding cost basis reduction, originally up to $1.80 per square foot for the installation of systems that reduce the total energy and power costs by 50 percent. These tax deductions are in addition to the deductions and tax shielding that Cost Segregation Studies provide, although the 179D Deduction applies to non-residential commercial properties, and residential properties 4-stories and above.

The tax deductions “pass-through” to individuals, LLC members, partners, shareholders, etc. the same as all ordinary tax deductions.  Updated by Congress in the 2022 Inflation Reduction Act, the 179D Tax Deduction requires a “Whole Building Method Modeling” that now measures energy reduction with a sliding scale with the following changes: 

• The required amount of increased efficiency a building must achieve to qualify for the deduction is reduced from 50% to 25%.
• Energy reduction will be based on a whole-building analysis rather than equipment- or system-specific improvements (eliminating partial allowance provision per system).
• For the first time beginning in 2023, non-government not-for-profit building owners can assign the tax deduction to the designer of record or to the design team. The Original 2005 Energy Policy Act authorized Government building owners the authority to assign the tax deduction, but there was no authority for not-for-profit owners to assign the tax deduction.
• The base amount of the deduction is $.50 per square foot, and the deduction is increased by 2 cents for each percentage point in energy efficiency, up to $1 per square foot. A bonus deduction of $2.50 per square foot is available if prevailing wage and apprenticeship requirements for laborers and mechanics employed by the building owner or contractors associated with the installation are met. The deduction also can be increased by 10 cents for each percentage point increase in energy efficiency, up to $5 per square foot.
• Real estate investment trusts can apply 179D deductions against earnings and profits.
• Duffy+Duffy Energy Tax Savings Engineers certify that installation will reduce total annual energy and power costs by up to 50 percent or more as compared to a reference building (Requires independent Engineers certification. Taxpayer can’t certify their own design or work).
• Energy and power consumption calculations are based on Department of Energy and IRS-approved software programs that compare the subject facility to an ASHRAE 90.1 Reference Building.

Building owners or tenants constructing energy efficient systems may claim the tax deduction in the year the property is constructed or retrofitted. With an IRS-approved Change in Accounting Method, taxpayers may claim unclaimed tax deductions today for any in-service year as far back as 2006. The deduction may be shared by tenants who share in the cost of these energy leasehold improvements.