Real Estate

Section 179D: Tax Deduction for Energy-Efficient Commercial Buildings

If you’re like most businesses, you’re searching for every means possible to avoid paying the big tax bill to the IRS.

If you’ve been careful enough and cared enough to build a commercial building with energy-efficient features, then you also need to take advantage of the tax incentives that you can get too. 

Do you know about the Section 179D claim you can deduct from your business tax filing? If not, you need to learn and take advantage of it. 

Read on to learn more about the Section 179D claim from the IRS. 

What Is Section 179 Deduction?

The Section 179D deduction is a special deduction available for business owners who own commercial properties and have added some energy-efficient features to the property. 

The tax deduction can come from installing qualifying systems in buildings. This can be that you do a new construction building with these qualifying systems or that you do renovations on an existing building and add them. 

The claim is unique, too, that if the system gets installed on a federal, state, or local government property, then the entity responsible for the design of the system can claim the deduction.

Which Properties Are Eligible for 179D?

Before you assume, it’s good to know exactly what buildings are eligible for the deduction. There are some restrictions on eligibility. 

You can claim the 179D deduction on the following buildings with energy-efficient systems:

  • Commercial buildings with no restrictions on the type
  • Residential buildings of four stories or more
  • Government-owned buildings
  • Parking garages

The buildings do need to be located in the US. 

How Much Is a Section 179D Claim Worth?

This deduction can be a significant value on taxes. It allows the building owner to claim a deduction of up to $1.80 per square foot. The allowance is for energy-efficient commercial and industrial buildings.

In most cases, the building owner is the one who will take the deduction. However, if the building is government-owned property the deduction is allowed to be claimed by designers, architects, engineers, and contractors of public buildings with the right screening and qualifying.

This has just recently been made a permanent deduction thanks to the Consolidated Appropriations Act which is a part of a COVID relief bill. 

Learn more about it here: https://tri-merit.com/section-179d/.

Claiming Section 179D Energy Efficient Commercial Buildings Deduction

To claim this deduction, there are some important things you need to do or the IRS will audit you.

First, you can make the claim on the building the same year the building goes into service. You must have a Section 179D study completed by a qualified third party to be eligible for the deduction. 

The person performing the study must not be the same person claiming the deduction. The study must also be done using IRS-approved energy software. The study using the IRS software should model the energy performance of the building and improvements.

Take Advantage of the Tax Benefits from Section 179D on Your Taxes

Section 179D deduction can be a lucrative claim to make if you’ve added energy-efficient features to your building or if you’re the designer of those features in a government-owned building. 

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