The Section 179D deduction offers up to $5.00 per square foot for energy-efficient commercial buildings, now expanded to schools, hospitals, and nonprofits under the Inflation Reduction Act. This guide explains eligibility, qualifying upgrades, and how to maximize the benefit.
The 179D Commercial Buildings Deduction, initially created within the Energy Policy Act in 2005, is a tax incentive for commercial building owners that encourages the installation and use of energy-efficient technology. Administered by the Internal Revenue Service (IRS), this tax incentive aims to promote energy conservation and sustainability in the construction and operation of commercial properties.
If a building meets the requirements of the qualification for the tax incentive, it would be able to receive compensation per square foot. Prior to the influence of the Inflation Reduction Act, the 179D Commercial Buildings Deduction only offered up to $1.80/square foot. As of January 2023, the tax benefit has significantly increased, allowing up to $5.00/square foot.
Before January 2023, the 179D Commercial Buildings Deduction had applied only to building owners, contractors, engineers, and architects of government-owned buildings or buildings leased to government entities. Now, with help from the Inflation Reduction Act, various other tax-exempt building entities and organizations are eligible to receive the tax incentive, including K-12 schools, dormitories, hospitals, sports arenas, universities, convention centers, military bases, religious buildings, non-profits, museums, courthouses, and tribal nations.
Additionally, individuals who invest in new construction or upgrades to their present buildings may qualify for 179D deductions if specific criteria are met. Environmental investments must be made in categories such as interior lighting systems, HVAC, or a building's envelope to qualify. To be eligible for the deduction, comparisons to ASHRAE Standards and certification by a qualified individual are required, and various strategies can be pursued.
ASHRAE Standards are focused on advancing heating, ventilation, air conditioning, refrigeration (HVAC&R) technologies, energy efficiency, and indoor air quality, all tied to energy usage. As stated previously, to qualify, a building must invest in energy improvements and updates to at least one of the following: interior lighting systems, HVAC, or a building's envelope. Interior lighting systems can be updated simply by switching to LED lighting systems. An additional effective method for enhancing lighting energy efficiency is installing smart lighting controllers with occupancy and motion sensors. Another improvement option is improving building envelopes; this can be done by installing energy-efficient windows and doors and improving insulation and roofing with materials that reduce heat gain.
Last but most importantly, upgrades to HVAC systems can be paired with energy management systems (EMS) and building management systems (BMS) to monitor better and manage your building's energy usage. HVAC systems can be fully upgraded to a new, energy-efficient system. Pairing smart thermostats and an EMS capable of automated demand control ventilation provides better efficiency and air quality. Tying everything together, EMS and BMS help control your building's various technologies and schedule when and how you want them to operate to achieve peak energy efficiency.
The 179D Commercial Buildings Deduction can be a powerful tool in negotiations with property designers, potentially leading to significant cost savings for your project. Here's how:
The 179D deduction serves as a financial incentive for property designers to incorporate energy-efficient features into their designs. By doing so, the building owner can qualify for the tax deduction, offsetting some of the project costs.
In some cases, the tax deduction can be allocated to the designer if the building owner is a government entity that does not pay taxes. This can be used as a negotiation tool to lower the designer's fee, as they stand to benefit from the tax deduction.
Energy-efficient buildings often have lower operational costs due to reduced energy consumption. This can be factored into the overall project cost, potentially leading to lower costs over the life of the building.
Buildings with energy-efficient features can be more attractive to potential tenants or buyers, potentially leading to higher occupancy rates or sale prices. This can be factored into the project's financial projections, potentially lowering the overall cost.
The tax savings from the 179D deduction can be significant, especially for large projects. These savings can be used to offset other project costs, effectively lowering the overall cost.
The 179D tax deduction can be valuable when negotiating with property designers, as it may help lower project costs. It is essential to seek the advice of a tax professional to fully understand the implications and benefits of this deduction for your specific project. By negotiating effectively and utilizing the benefits of the 179D deduction, you can increase your savings and improve the financial viability of your project.
Sanalife's E360 energy management system takes a big step in energy efficiency as it pairs perfectly and helps manage indoor air quality (HVAC usage and filtration), lighting controllers, switches, and thermostats. E360 provides benchmarking, trend monitoring and analyses, and automation, in addition to tracking factors that impact indoor air quality, maintaining building health, and providing 24/7/365 air and surface pathogen protection.
In doing so, E360 produces a 99.99% reduction in airborne and surface pathogens with Sanalife's ActivePure 24/7/365 HVAC Induct air purification systems, a 20% annual savings rate on energy and utilities, and a 75% reduction in a facility's carbon footprint. By partnering with Sanalife, you can unlock the 179D Commercial Buildings Deduction's full potential and impact your building's sustainability, occupant well-being, and energy cost savings.
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