Little-known Tax Break: The 179D Tax Deduction

The 179D tax deduction can provide great benefits to taxpayers, however, it is largely overlooked. The 179D deduction was originally enacted under the Energy Policy Act of 2005 and offers tax incentives for sustainable, energy efficient building design. Commercial building owners or primary designers – here’s looking at you, architects, engineers, and contractors – can receive a tax deduction of up to $1.80 per square foot for implementing energy efficient designs in new or existing buildings.

Three building subsystems that are potentially eligible for the 179D deduction are the building envelope, HVAC/hot water systems, and interior lighting systems. To qualify for the credit, the building must surpass the 2001 ASHRAE standards, in short. This isn’t incredibly difficult, as now most current state codes already require this. For an architect, engineer, or contractor, a letter must be obtained from the government agency allocating the tax benefit and also have it independently certified.

The good news if you’re only learning about this credit incentive now: you can go back three years to receive the benefit of the 179D deduction! This means an architect, engineer, or contractor can look at government buildings they helped design in the past 3 years, obtain an allocation letter from the government, and then amend their tax returns to receive the 179D deduction.

The 179D provision expired on December 31, 2016, and it’s uncertain whether or not the provision will be extended into 2017 and beyond. However, as stated above, there’s still time to claim the deduction for buildings placed in service prior to January 1, 2017.

Kelly Koman

Kelly Koman

Kelly Koman is a Tax Supervisor with McKonly & Asbury. Kelly’s primary focus is on preparing federal and state tax returns for S and C Corporations, partnerships, and individuals. Kelly is also a member of the firm’s Independence Committee and ensures that employees comply with the AICPA’s Independence Rules.

For more information on this article, or for any related questions feel free to contact Kelly directly at KKoman@macpas.com.

Kelly Koman

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