Act Fast to Take Advantage of the IRS Section 179D Deduction
Environmental consciousness is on top of many people’s minds today, making “going green” the mantra of the 21st century. This includes many business owners who want to operate their companies in the most environmentally friendly way possible.
Fortunately, the goals of environmental stewardship and business profitability are not mutually exclusive. It’s possible for you to implement green energy management techniques that increase energy efficiency and reduce your maintenance and operational costs — while helping protect the environment at the same time.
And for a limited time, you can also receive a Section 179D tax deduction for making qualifying energy-efficiency improvements. But you must hurry — this tax break expires at the end of 2013.
How Section 179D Works
Congress included the Section 179D tax incentive as part of the Energy Policy Act of 2005, and the deadline was subsequently extended to December 31, 2013. Section 179D provides small businesses with a deduction for either:
- 1. Constructing new high-efficiency commercial buildings, or
- 2. Making energy-efficient retrofits and upgrades to existing commercial buildings.
Making upgrades and improvements to office lighting, HVAC and hot water systems, and the commercial building envelope can boost energy efficiency considerably, but this can be expensive. The Section 179D deduction can help reduce the cost of making energy-efficiency improvements like these by allowing building owners to deduct up to $1.80 per square foot of the cost of qualifying upgrades during the first year after the improvements are made.
Here’s how it works: You must install building envelope, interior lighting, or an HVAC or hot water system that reduces your total building power and energy costs by at least 50 percent annually compared to ASHRAE 90.1-2001 minimum requirements in order to qualify for the full $1.80 per square foot deduction. You may qualify for a partial deduction of up to .60 per square foot if your total power and energy costs are less than this but result in at least:
- A 25 percent annual reduction compared to ASHRAE 90.1-2001 minimum requirements for interior lighting systems.
- A 15 percent annual reduction compared to ASHRAE 90.1-2001 minimum requirements for HVAC and hot water systems.
- A 10 percent annual reduction compared to ASHRAE 90.1-2001 minimum requirements for the building envelope.
Note that the Section 179D deduction is per system, and you do not need to upgrade all three types of systems (i.e., interior lighting, HVAC/hot water and building envelope) to qualify. A professionally licensed engineer must perform a site visit, field inspection and testing to determine if these energy-efficiency upgrades qualify for a deduction. If they do, the engineer will provide certification to substantiate your deduction.
Also note that you can claim the Section 179D deduction retroactively going back to 2006 if you performed qualifying energy-efficiency upgrades in the past but weren’t aware of the deduction. Talk to your accountant about the details involved in this process.
Section 179D offers a potentially valuable tax incentive for boosting your company’s energy efficiency, but you have to act quickly as the deduction expires at the end of 2013. For assistance from City National Bank, give us a call at (800) 773-7100 or Email Us and request that a Relationship Manager contact you.
City National, as a matter of policy, does not give tax advice. You should consult with your own tax advisor respecting your unique tax situation.