Sign Up for the CREATE Series Click Here
Energy & Efficiency Studies = Tax Benefits for Commercial & Residential Properties
Our clients have a keen interest in the tax benefits that can be derived from §179D of the Energy Policy Act of 2005 (EPAct). Section 179D allows for immediate deduction for energy-efficient commercial property up to a maximum of $1.80 per square foot. Even better, this deduction can pass on to architects and designers who design efficient government buildings.
§179D Analysis — A brilliant deduction, but you need to qualify.
Of course, it’s not as easy as simply claiming that your building is energy efficient and then paying a lower tax bill—there are strict requirements to meet. The improvements in question must fall under certain categories.
§179D specifically looks at three areas of the building:
- Interior lighting systems
- Building envelope or shell
- HVAC and service hot water systems
Finally, a qualified building must be certified by an independent, qualified organization such as MS Consultants.
§45L Credits — Often Overlooked Tax Benefits for Residential Properties
Formally codified as Energy Efficient Home Credit IRC §45L, this provision can provide major savings for real estate owners—particularly those owning certain apartment buildings and other larger residential buildings.
In order to qualify for the §45L credit, a residence has to meet four major conditions:
- Located in the United States
- Completed between January 1, 2006, and December 31, 2021
- Meet the energy savings requirements of the section—this means it must project an annual energy consumption savings of 50%, and certified by an eligible expert
- Must be a residence—meaning it must be occupied within the given time range.
Do you qualify?
One of the exciting aspects of §45L is that, thanks to modern building techniques and materials, the majority of residences built in recent years meet the energy efficiency requirements—often regardless of whether they were built with the intention of being “green." This is not to say that every recent construction will automatically qualify, but don’t discount the possibility that your property may qualify simply because you didn’t concentrate on energy efficiency. If your building followed current best practices, there’s a good chance you’ll see some tax savings.
What are the benefits? Let’s do the math.
Assuming a dwelling meets all of the above conditions, the savings can be substantial. To demonstrate, let’s look at an example. Let’s say your company constructed a condominium complex in New York State that was completed just a few years ago. The structure has 500 units, and between completion of construction and today, all of the units are occupied. The structure was built following best practices and falls under the IRS’ definition of energy efficient.
You fulfill all of the requirements for each of the units, so with a little simple math: 500 units times $2,000 is $1,000,000. The depreciable basis of the condominium would be reduced by $1,000,000—without any extra work on your part.
It's worth noting that to realize this credit, a taxpayer’s property must be in-service and claimed in the current or any open tax year.
How We Can Help
The tax and engineering professionals at MS Consultants have been performing §179D analyses since the provision was announced, and we're experts at investigating properties and systems improvements and completing the necessary modeling, simulation, and certification paperwork.
When you work with us, you can rest assured that we’ll take care of the entire process with as little hassle for you or your clients as possible.
Let’s Get Started.
Contact us today to find out what sort of tax benefits you could derive from a §179D analysis.