Through the use of the tax deduction, investors may fully depreciate the cost of purchasing energy efficient lighting. Having a good idea about the terms and the conditions will be the key to picking the best option on the market and making the most under the EPAct 179D incentive.

General Requirements

To qualify for the incentive, a commercial building should consume 50 percent less electricity for HVAC purposes than a comparable property in the same region. If the design doesn’t meet the 50 percent requirement, it could still qualify for a partial deduction.

The execution of a lighting project is one of the simplest and most efficient possibilities for getting a partial deduction. In this case, the incentive will total 0.6 dollars per square foot, rather than the entire amount of 1.8 dollars per square foot.

For partial improvements, the lighting must produce 25 percent reduction in energy consumption. Under EPAct 179D, 15 percent of the reduction should stem from HVAC improvements and another 10 percent need to come from building envelope modifications.

Alternative Evaluation Methods for Lighting Improvement

Architects and engineers can use interim lighting rules and alternative methods of evaluation, in case solely lighting improvements have been carried out under EPAct 179D.

It’s possible to do a watts per sq. ft. calculation in an attempt to measure the energy efficiency of the lighting installation. The lighting will need to be anywhere between 25 and 40 percent more energy efficient than standard possibilities for commercial buildings.

If the lighting corresponds to the alternative method of evaluation criteria, the EPAct 179D tax deduction will be in the range from 0.3 to 0.6 dollars per square foot. Under this possibility, the lighting system should come with an automatic shut off feature and a bi-level switching component.

Types of Energy Efficient Lighting

LED lights and induction lighting are both great possibilities for getting a taxation incentive connected to commercial building energy efficiency.

The electricity savings that LED lights are capable of producing can be nearly 75 percent lower than the energy consumption of standard bulbs. The use of such lights is one of the easiest possibilities for getting an incentive totaling 0.6 dollars per square foot of property.

Induction lights are also preferred by many contractors because of the relatively low maintenance costs and the excellent energy efficiency these provide. Apart from qualifying the property for the EPAct 179D tax incentive, induction lights will also bring a very high return on investment in the long run for the owner of the property. This characteristic will make commercial units much easier to sell and it will also bring the value up.

A Few Additional Terms and Conditions

The building has to be certified by a third party prior to claiming the 179D incentive. The qualified assessment professional will compare the unit to a similar one and figure out the electricity savings that it produces.

The effective timeframe of the provision is from January 1, 2006 to December 31, 2014. EPAct 179D was extended retroactively in the end of 2014 to cover all of the projects executed through the year. Architects, engineers and contractors alike can claim the incentive provided under Section 179D.

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Eligible Structures

When planning new buildings or energy efficient upgrades to existing facilities, take note of which types of structures are actually eligible to receive tax incentives. There’s nothing more frustrating than infusing a large amount of capital on a project with the expectation of significant tax relief, only to find out after the fact that said relief isn’t going to be an option.

According to IRS guidelines, the following structures qualify for the 179D tax incentive:

• Buildings used primarily for commercial purposes
• Buildings used for industrial purposes (except industrial process systems)
• Multifamily residential buildings of four or more stories, including dormitory buildings
• Buildings that have been converted from other uses to primarily commercial use
• Unconditioned attached or detached garage spaces

These types of buildings, on the other hand, are not eligible for the 179D tax incentive:

• Single-family homes
• Multifamily buildings with three or fewer stories above grade
• Manufactured houses
• Buildings that do not use electricity or fossil fuels
• Religious buildings and organizations 

Required Savings

Previously a building was required to demonstrate a combined energy savings of 50%, but a 2008 rule change amended these criteria. In order to receive the 179D tax credit today, an upgraded structure must yield 10% energy and power cost savings for envelope improvements, 20% for lighting improvements, and 20% for HVAC improvements.

Who Qualifies?

• In general, these are the parties that are eligible to clam the tax incentive:
• Building owners that own the improvement
• Building tenants that paid for and own the improvement
• Architects, contractors or engineers responsible for designing energy efficient government buildings

Time Period 

Energy efficient upgrade projects that began in 2005 or later are eligible for the tax incentive. 

Deduction Threshold

The maximum deduction for the 179D tax incentive is $1.80 per square foot. 

Installation by Licensed Professionals

According to IRS Notice 2006-52, all work performed must be certified by a licensed contractor or engineer in the jurisdiction where the building is located. Certification documents may be prepared by a nonqualified person, but they must be reviewed and signed by a qualified individual. Additionally, the licensed profession cannot be related to the individual claiming the tax incentive.

Required Documentation

• A complete set of architectural drawings
• Energy compliance documents for lighting, envelope and HVAC
• EnergyPro computer file
• Primary contact information

These basics provide a good starting point for anyone looking to claim the 179d tax incentive. That said, it’s very important to periodically review these requirements before beginning a new project, because they are always subject to change.

The post The 179D Tax Deduction – Can You Claim It? appeared first on Claris Energy.