Claim §179D Benefits in 2013 Before it Sunsets

§179D May Sunset in 2013

Summary:  Although §179D of the IRS code expires at the end of 2013, opportunities exist in two areas: accelerating future projects into 2013 and reviewing projects dating back to January 1, 2006 that resulted in energy savings.  Either of these can allow the building owner, occupant, or designer to qualify for the deduction.

Worried that 2013 will be the end of your ability to deduct energy improvement investments under §179D of the Internal Revenue Code?  Fear not!  While energy efficiency upgrades need to be completed by December 31, 2013, the window for utilizing this deduction extends back to January 1, 2006.  As we head into tax season, it can be beneficial to review past energy projects and see if they may qualify for the §179D deductions.

§179D of the Internal Revenue Code supporting the Energy Policy Act of 2005 is one incentive that may provide major benefits to building owners, designers and contractors.  §179D includes full and partial tax deductions for investing in commercial building improvements that are designed to increase the efficiency of energy-consuming functions such as lighting, HVAC, and building envelope.  The deduction available is up to $.60 per square foot for each: lighting, HVAC, and building envelope – a potential for $1.80 per square foot if all three components/subsystems qualify.  The following factors need be taken into consideration:  1. Can the building owner take the deduction?  2. Does the project qualify?

There are several strategies that can be employed to take advantage of the §179D deduction.  First, it is important to understand that projects must be completed by December 31, 2013.  Building owners and operators planning on energy efficiency projects in 2014 and beyond should assess accelerating those projects into 2013 to take advantage of the deduction available. Accelerating projects into 2013 will qualify for the deduction and will also generate additional operational savings for the additional years they are in service.  This deduction may be taken on renovations/retrofits to existing buildings as well as new construction.  The act requires a reduction in annual energy and power consumption per subsystem to the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) Standard 90.1-2001.

Now is the time to review past projects that resulted in energy savings to determine if they are eligible for the deduction.  The act specifies when the project must be completed, not when the deduction has to be taken.  Even after the sunset of §179D at the end of 2013, projects completed within the window are eligible.

Discussions on the tax code and its application are not something the average person enjoys, but this should not deter the building owner, occupants, architectural/design firms or builders.  The organizations that provide certification should be skilled in tax and engineering to understand and apply the requirements and application of §179D and to assist the owner, operator, or designer in navigating the process for both anticipated projects and past projects.

Don’t let §179D benefits expire without taking advantage of the allowable deduction for energy saving projects.  Consider accelerating future projects into 2013 to take advantage of the benefit.  Review projects completed since January 1, 2006 for opportunities to take advantage of the deduction.  Energy improvements may have resulted from a renovation that improved lighting and/or cooling efficiency, an upgrade to mechanical equipment as part of a maintenance program, and/or improvements to the building envelope.  Each of these, lighting, HVAC and building envelope, may meet the requirements for the $.60 per square foot deduction and/or for the total of $1.80 if all three areas show qualified improvements.  Contact Capital Review Group in assessing and applying §179D to potential past and planned projects.  CRG can guide you or your organization through the process and assist in the third party certification of projects.

About the author:  Wayne Haggstrom is a technical writer for Capital Review Group in Phoenix, Arizona.  He has over 25 years experience in construction, facilities operations and maintenance, and technology implementation.  He is a Certified Sustainable Building Advisor (CSBA) and a Certified Six Sigma Black Belt.