How much can businesses save by adhering to the section 179D requirements? Is the execution of such energy efficiency improvements a good idea and what deduction will these contribute to?

Section 179D Incentive: The Basics

The taxation incentive available under section 179D was extended retroactively in the end of 2014. This means all projects executed during the year and corresponding to the energy efficiency requirements can qualify for the taxation stimulus.

The deduction reaches up to 1.8 dollars per square foot of the commercial building’s surface area. Alternatively, a partial deduction will be available. The partial deduction is 0.6 dollars per square foot for any of the following improvements:

• Building envelope energy efficiency
• Lighting energy efficiency
• HVAC equipment energy efficiency

What does this mean? If an investor executes a project that focuses on building envelope and HVAC energy efficiency, the section 179D incentive will reach up to 1.2 dollar per square foot of the commercial building’s surface area.

A number of different construction projects can be executed. A commercial building is a vague term that could refer to an office, a warehouse, an industrial venue, a shop, a production facility or even a dormitory. A residential building that is redesigned to become a commercial one will also qualify for the incentive.

How Much Money can Businesses Save?

The section 179D tax deduction could reach a significant amount, depending on the complexity of the project and the number of buildings being constructed or retrofitted.

Here’s a simple example that will put things in perspective. An investor decides to build a 50,000 square feet commercial building. The tax deduction for each of the three components (lighting, HVAC and building envelope) will be up to 30,000 dollars (50,000 sq. feet x 0.6 dollars per square foot). If the project features all three kinds of improvements, the total amount of the deduction will be 90,000 dollars.

The construction of a bigger commercial project will obviously result in more significant tax deductions. If the surface area of the project is 750,000 square feet, the individual deduction for each of the three components is going to reach up to 450,000 dollars. Together, the three components add up to a total deduction of 1.35 million dollars.

Having an idea about the construction cost in advance is a good possibility for figuring out whether the section 179D tax deduction will contribute significantly to reducing expenses and simplifying project execution.

You should also keep in mind that buildings have to be certified by a third party to qualify for a taxation incentive. Though this evaluation has a particular cost, the investment in getting the certification will still make a lot of financial sense in the long run.

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If you are a professional working in this sector you should know that you could become eligible for two important and extremely underutilized financial rewards, known as R&D tax incentive (research and development tax benefit) and section 179D, widely known as the Energy Efficient Commercial Building Deduction.

The Senate Finance Committee has recently passed a new legislation that extends a few expired tax benefits for businesses and individuals, including Section 179D and R&D tax incentive. This is obviously excellent news for builders, contractors and designers who wish to play the energy efficiency card to profit from substantial incentives allocated by the U.S. government. The best part is that both types of tax incentives will be retroactively extended until the last month of 2015; moreover, it seems that in the near future these tax benefits could become permanent, stimulating an even greater number of developers to follow the same trend and build or remodel greener constructions.

According to Forbes, the provisions will support job growth all across America and encourage a wide range of innovations implemented by designers, architects and contractors who are looking forward to making the most of every single tax break that they can qualify for.

How Does R&D Work?

R&D tax incentive is a benefit allocated to businesses of all sizes that manage to improve a technique, product of process. It represents one of the most consistent incentives provided by the government. It first came into effect in 1981 and got extended no less than 15 times. Contrary to popular belief, you don’t have to spend all your time in a secret laboratory testing and improving different breakthrough formulas to become eligible for the R&D tax incentive. As a matter of fact, this tax incentive is associated with applicable science. This tax credit basically rewards constructors who come up with ingenious, feasible solutions to a wide range of design challenges.

How Does The Benefit for Green Buildings Work?

Section 179Dtax incentive,also known as the green tax benefit allows designers, contractors and architects to profit from considerable monetary advantages when they construct or remodel greener, energy-efficient commercial buildings on U.S. territory. The deduction varies a great deal based on the scope and the size of the commercial building; however you should know that the maximum value that one could reach when it comes to cashing in the green benefit is 1.80 dollars/square foot. For instance, a company that renovated a stadium by adding energy-efficient features like glazed panels and non-water toilets managed to collect almost $300,000 in tax benefits.

You could be next in line for such substantial incentives. If you have a question regarding R&D or Section 179D, just give us a call. At Claris Energy, we do everything in our power to help businesses implement the simplest, most profitable green energy solution.

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