by Brady Bryan, JD, CEO of BRAYN Consulting and Austin Bewley, EIT, Engineering Associate of BRAYN Consulting
(W)hat is 179D?
The 179D Commercial Buildings Energy Efficiency Tax Deduction is a tax incentive meant to reward designers, contractors, and business and building owners for engaging in energy efficient design practices. Properties that are eligible for a 179D deduction include: office buildings, warehouses and industrial buildings, retail buildings, government-owned buildings, and apartment complexes with more than 4 stories.
179D awards $0.60 per square foot for energy efficient lighting, HVAC systems, and building envelopes for a combined total of $1.80 per square foot. A building can meet the requirements for all 3 systems or even just one. For example: A 100,000 square foot warehouse with energy efficient lighting, HVAC systems, and building envelope could qualify for $180,000 in deductions. A 100,000 square foot parking garage that only has energy efficient lighting could earn a $60,000 deduction.
(W)ho can benefit?
For commercial buildings and other private property, the 179D deduction is available to building owners. Warehouses and industrial buildings, shopping centers, and other large structures make great 179D projects as the potential deduction increases with the size of the building.
For government owned buildings like schools, public universities, fire and police stations, and other public buildings, the designer of the building’s lighting, HVAC system, or building envelope is eligible to receive the deduction. This includes the architecture and civil engineering firms that performed design work for the building. Since the building is owned by the government and therefore does not pay taxes, the government is able to transfer the potential deduction onto the eligible designer. All that is required is an Allocation Letter, signed by a government representative, that transfers the deduction onto the designer.
For example: If your firm designed a school built in 2017, then your firm could be eligible for a large 179D deduction! Schools are great for 179D studies as they are large structures that easily meet the requirements for 179D.
(W)hen: what years are available for deduction?
Currently, buildings that were placed in service before 2018 are eligible for the 179D deduction. 179D was originally passed in 2005 and has been extended multiple times all the way through 2017. Contractors and designers who worked on government owned buildings can take advantage of qualified buildings placed in service in 2016 and 2017.
179D is currently pending extension for 2018 and 2019.
Ho(w) do we take advantage?
For a building to qualify for the full $1.80 per square foot deduction, the subject property needs to be at least 50% more efficient than the baseline building described by the 2007 ASHRAE Standards. The reduction in energy consumption need to come from the interior lighting, the building envelope, or the HVAC and hot water systems.
To determine the energy efficiency of the building, a precise model of the building must be created using a Department of Energy approved computer modeling software. The model will determine the energy expenditure of the building in order to compare it to the government standards. Additionally, a site inspection of the property must be performed to verify the design.
(W)here do we look for someone to do this?
The computer models and energy efficiency analyses required to take advantage 179D are complicated and require a thorough understanding of building science, as well as the Department of Energy’s computer modeling software. Additionally, a licensed professional engineer needs to complete the energy modeling. The combination of engineering know-how and tax expertise can be a hard combination to find, however it is essential to ensure that the required energy efficiency studies are done correctly.
If you are interested in 179D, then look no further than BRAYN Consulting! BRAYN has a team of experienced engineers who have completed hundreds of 179D studies. We perform our own site inspections and can even help secure allocation letters for government owned buildings. BRAYNiacs are local and include a Colorado School of Mines alum. We are committed to ensuring that our models meet all the requirements laid out by ASHRAE and the IRS. At BRAYN, we work to combine our thorough knowledge of the tax code with the technical expertise of our engineering staff. We are known for our quality customer service and our knowledge of the architecture and engineering industries
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