EXTENDED TAX DEDUCTION FOR ENERGY
IMPROVEMENTS TO COMMERCIAL BUILDINGS
Recent legislation created, expanded, or extended many tax deductions, credits and government grants which promote energy efficiency. In particular, we would like to bring to your attention the extension of Section 179D Energy Efficiency Commercial Buildings Deduction.
This deduction is available to owners and lessees of commercial buildings. It allows an immediate tax deduction of up to $1.80 per square foot for energy improvements made to depreciable property constructed between December 31, 2005 and January 1, 2014. To qualify for the maximum $1.80 deduction deduction, completed improvement must be certified to reduce the total energy and power costs with respect to heating, cooling, ventilation, hot water, interior lighting systems, and building envelope by at least 50% as compared to a reference building.
Partial deductions of $0.60 per square foot are available for each individual component which reduces total energy and power costs by 16 2/3% or more as compared to a reference building.
These individual components are:
1. Interior lighting systems
2. Building envelope (defined as the outer shell used to protect the indoor environment)
3. Heating, cooling, ventilation and hot water systems
The IRS reference building is based on the ASHRAE 90.1-2001 industry standard. Many current building codes are now based on the ASHRAE 90.1-2004 or later standards. This means typically new construction will qualify even if built to minimum standards. An eligible certifier is a properly licensed professional engineer or contractor who is unrelated to your business. A listing of eligible certifiers by geographic area can be found at www.natresnet.org. Alternatively, you may also contact David DeGrand of SourceCorp, whom we have worked with in the past, by phone at 817-546-6584 or by email at David.DeGrand@sourcecorptax.com. If you would prefer that we handle the initial contact, please let us know and we will be glad to do so.
From a practical standpoint, the 179D deduction is actually a special form of accelerated depreciation. Thus, you are taking a depreciation deduction now instead of spreading it over 39 years. This enhanced current year deduction can provide an immediate cash benefit event if it creates a loss in the current tax year since the loss can be carried back to prior profitable years.
There is also a provision for improvements made to a publicly-owned facility. Because government agencies are not taxed, the deduction may be claimed by the architect, engineer, contractor, environmental consultant or energy services provider who created the technical specifications for the project
Please contact Terry Martin or Hal Margolit, Tax Managers, at 215-675-8364 with any questions.
