Congress originally passed the Section 179D deduction as part of the Energy Policy Act of 2005 in direct response to broader energy usage and energy independence concerns. Section 179D has been subject to renewal every few years.
That uncertainty has been removed as the Section 179D tax deduction was made a permanent fixture of the tax code by the Consolidated Appropriations Act of 2021.
Section 179D allows qualifying building owners and businesses, including healthcare property owners, to receive a deduction of up to $1.80 per square foot for their energy-efficient improvements made during qualifying tax years. The deduction can be carried back 2 tax years or carried forward for 20 tax years.
There are multiple methods to securing Section 179D deductions and different levels of deductions depending on the energy efficiency levels that your project meets.
Section 179D covers improvements to an HVAC system, hot water system, interior lighting system or the building’s envelope. Reducing energy consumption costs by as little as 10% can result in substantial tax savings.
Under a special rule for public property, designers, engineers, builders, contractors, architects, environmental consultants, and energy service providers also may qualify for this tax deduction if they have improved the energy efficiency of a new government building or enhanced an existing government structure.
Government-owned buildings include schools as well as county and municipal buildings and offices. Because government entities are not taxed, the building owner can allocate these tax savings to the provider or firm responsible for making these improvements.
The Section 179D deduction can result in substantial tax savings, depending on the energy efficiency levels met by the project. To qualify, energy-saving improvements must surpass ASHRAE 2001 standards for buildings placed into service before 2016 and ASHRAE 2007 standards thereafter. Property owners and business owners benefit not only from the tax deduction but also from the ongoing savings achieved through energy-efficient improvements.
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