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179D Federal Energy Tax Deductions

If you own a building you may be overlooking a very important tax deduction that, if applicable, can provide substantial tax savings for your business.

What is this little known tax break? Section 179D. This is the section of the tax code that provides a benefit for businesses when they build or renovate a building (or design a government building in the case of an architect, engineering or contracting firm) that is energy efficient. The deduction can be up to $1.80 per square ft.

New Buildings

Most states now require that new buildings surpass 2001 ASHRAE standards. If the building does, it will qualify or partially qualify for 179D.

Building Improvements

As building owners, you know that many systems in the building require periodic replacement long before they are fully depreciated such as HVAC/hot water systems, interior lighting systems, etc. There are a number of ways that these building improvemenst can qualify or partially qualify for the 179D tax deduction.

Attention Architects, Engineers and Contractors

The tax law provides that a government agency (federal, state or local) can allocate the 179D tax benefits to the architect, engineer, contractor engaged in designing and building government buildings. The architect, engineer or contractor is assigned the tax benefit from the government agency. In fact, you can go back three years and obtain this benefit. Meaning that you can review government buildings you helped design or build that were placed in service in the last three years — receive an allocation letter from the government and amend your tax returns and obtain the 179D benefits.

Building Owners & Tenants

The owner of the building or improvement can go back to buildings put in service or improvements made in the last six years – – and they will qualify for 179D. The building owner takes the deduction in the current year and reduces the basis in the building or improvement. For building owners, 179D provides a potentially significant timing benefit in paying taxes.

Tenants can also qualify if the tenant paid for and owns the improvement.

What qualifies?

  • Commercial buildings (any size).
  • Apartments, four+ stories, for lease.
  • Commercial energy renovations.

What is the time frame for eligibility?
Units must be completed or renovated after December 31, 2005 but before December 31, 2014.

Contact your Dugan & Lopatka CPA at (630) 665-4440 for more information.

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