The Energy-Efficient Commercial Buildings Deduction, commonly known as 179D Deduction, is a tax incentive intended to encourage energy-efficient upgrades and designs within commercial properties.
Unfortunately, however, many misconceptions persist regarding its benefits, preventing businesses and owners from fully taking advantage of them. Here we will debunk 10 of these common myths regarding 179D claims and set the record straight.
1. Myth: Only New Construction Projects Qualify for the 179D Deduction
Fact:
Both new construction and retrofit projects qualify for the 179D deduction, though originally, it only applied to newly built structures. This incentive has since been expanded to cover energy-efficient upgrades to existing structures as well, so building owners or designers who install energy-saving lighting, HVAC, or insulation systems that meet threshold levels may qualify.
Key Takeaways: Regardless of whether you are building or renovating an existing structure, the 179D deduction may apply if your project emphasizes energy efficiency.
2. Myth: This Deduction Is Only Open to Building Owners
Although building owners typically claim the 179D deduction, the Inflation Reduction Act of 2022 expanded this deduction, now allowing architects, engineers, and designers working on government-owned and tax-exempt buildings to take advantage of it. Since these entities cannot leverage tax incentives, it is passed on to third-party businesses working on the buildings.
Key Takeaways: When working on government projects, architects, engineers, and other designers may take advantage of tax deductions.
3. Myth: 179D Deduction Too Small to Matter
Fact:
For 2024, if PWA requirements are not met, the 179D deduction ranges from $0.57 to $1.13 per square foot. When they are met, the deduction increases to between $2.83 and $5.65 per square foot. Recent changes to Sec. 179D offer up to $5.36 per square foot in deductions to promote the construction of energy-efficient commercial and multifamily buildings four stories or taller.
Key Takeaways: Deducting project expenses is often possible and offers significant tax savings.
4. Myth: Only Energy-Efficient Lighting Qualifies for Deduction
Fact:
While energy-efficient lighting is one of the primary categories eligible for the 179D deduction, other areas covered include HVAC systems and building envelope upgrades, as well as improvements to insulation, roofing, and windows that contribute to overall energy efficiency and qualify for the deduction. Collectively these improvements can help a building reach the energy savings threshold.
Key Takeaways: The 179D deduction covers upgrades in lighting, HVAC, and building envelope systems – making it suitable for many different projects.
5. Myth: Deduction Requiring Complex Certification Isn't Worth the Effort
Fact:
While the certification process for the 179D deduction does require some effort, it should not be too complex. A qualified engineer or contractor must evaluate your building to certify it as energy efficient. With proper documentation and assistance available to you, this process should be manageable – the savings earned through deduction often outweigh its effort.
Key Takeaways: Certification processes are straightforward and not overly burdensome when considering their tax savings potential.
6. Misconception: The 179D Deduction Is Unavailable to Small Businesses
Fact:
Any business that owns or leases commercial property and invests in energy-saving upgrades can qualify for the 179D deduction, regardless of size. Even small companies investing in energy-efficient lighting, HVAC, or building improvements can reap substantial tax advantages under this rule.
Key Takeaways: The 179D deduction is open to businesses of all sizes, including smaller firms investing in energy-saving upgrades.
7. Myth: Buildings Must Meet Stringent Energy Standards in Order to Qualify for Tax Abatements
Fact:
While buildings do need to achieve energy savings, their efforts do not have to be perfect in order to qualify for the 179D deduction. For 2024, the 179D deduction is based on meeting certain energy savings thresholds. If PWA (Prevailing Wage and Apprenticeship) requirements are not met, the deduction ranges from $0.57 to $1.13 per square foot. However, if PWA requirements are met, the deduction increases significantly, ranging from $2.83 to $5.65 per square foot.
Key Takeaways: Compliance with energy standards may result in a prorated reduction of expenses.
8. Myth: Claiming the 179D Deduction Can Only Be Claim Once
Fact:
The 179D deduction is recurrent–this means if you make new qualifying energy-efficient improvements over the course of multiple tax years, such as installing lighting upgrades one year and then HVAC units in subsequent ones, you can claim both deductions simultaneously. For instance, upgrading lighting might qualify for one deduction, while installing both changes may qualify for both deductions simultaneously.
Key Takeaways: You can claim the 179D deduction multiple times for energy-saving improvements made in different tax years.
9. Myth: The 179D Deduction Will Soon Expire and Will No Longer Be Available in the Future
Fact:
Though initially intended as a temporary incentive, the 179D deduction has been extended several times due to its popularity and impact on energy efficiency. Under the Inflation Reduction Act, it has been extended indefinitely; no indications that it may expire anytime soon are evident; there is ongoing support to expand and enhance it further.
Key Takeaways: The 179D deduction has been extended, providing tax savings opportunities for energy-efficient projects.
10. Myth: Claim The Deduction Without Expert Guidance
Fact:
Although it is possible to claim the 179D deduction without professional assistance, it is highly recommended that you leverage energy efficiency professionals and tax credit specialists. Their expertise will ensure your projects comply with necessary standards while receiving maximum deduction and paperwork is in order.
Key Takeaways: Expert guidance increases your odds of successfully claiming and avoiding errors for the 179D tax deduction.
Conclusion
The 179D deduction can provide businesses, architects, and engineers with significant tax savings when undertaking energy-efficient commercial building projects. Despite common misperceptions about this deduction, understanding its facts helps companies take full advantage of its incentives.
Whether yours is large or small, new or established, taking advantage of it can provide substantial tax savings on energy-efficient improvements.
Categories
- 179D (20)
- 179D (37)
- 45L (2)
- Archive (9)
- Case Studies (64)
- Cost Segregation (5)
- Cost Segregation (10)
- CPACE (5)
- ERC (3)
- Event (9)
- News & Blog (67)
- R&D (22)
- R&D (18)
- SBA 504 (4)
- Tax News & Updates (13)