This document provides information about section 179D of the tax code, which allows commercial building owners and designers of public buildings to receive tax deductions for making energy efficient improvements. It qualifies buildings that achieve at least 10% savings in lighting, HVAC systems, or building envelopes. A 50% reduction in overall energy usage provides a maximum $1.80/square foot deduction. The document outlines the qualification process, required documentation, eligible building types, examples of past percentage requirements, and case studies of projects that benefited from the deduction.

1. S E C T I O N 1 7 9 D
Commercial Real Estate Energy Efficient Tax Deduction

2. INTRODUCTION
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction
What is 179D?
Qualifying %’s
$ Savings
What documents are
needed
Who can Benefit?
History/Updates
Case Studies

3. • If a building achieves a 50% reduction in energy
usage, it may fully qualify and could receive a
$1.80/SF tax deduction
WHAT IS 179D?
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction
• If the building achieves a 10%-25% reduction in
energy usage, for any of three systems (HVAC,
Envelope or Lighting), it receives $0.60/SF for
each qualifying system
• The energy usage for the building is compared
to a reference building based on ASHRAE 90.1-
2001 (For buildings built in 2016 or later, the
standard is ASHRAE 90.1-2007)

4. Commercial Real Estate
Owners
Lessees of buildings who pay for
improvements
Designers of Public Buildings - Engineers,
Architects and/or Contractors that “specify”
installation of energy efficient materials
WHO CAN BENEFIT FROM 179D?
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction

5. Commercial Real Estate-Offices, industrial, retail, supermarkets,
commercial buildings, Multi-family buildings that are more than 4
stories tall
TYPE OF
BUILDINGS
ELIGIBLE
Public Buildings-Schools, Police and Fire Stations,
Libraries, Courthouses, Government Offices,Town
Halls
1.
2.
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction

6. WHAT IS THE ENERGY EFFICIENT TAX
DEDUCTION BASED ON?
25%
Lighting
15%
HVAC Systems
10%
Building Envelopes
Interior, Enclosed Parking garages, Fluorescent
T5,T8 replacements, LED
Heating,AirConditioning, HotWater Heating,
Energy Efficient HVAC Systems
Upgraded roofing materials, building insulation, and
windows, low value SHGC and low UValue windows
and wall insulation
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction

7. 2
34
1
Partially Qualifying Building (Lighting,
HVAC systems or Building Envelope
qualifies individually)
$0.60/SF for each partially Qualifying
System
Building Fully Qualifies for $1.80/SF
(50% or more energy efficient)
$0.60/SF for each partially Qualifying
System
$1.20/SF for two Qualifying Systems
DIFFERENT WAYS BUILDINGS CAN
QUALIFY
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction

8. 2005 EPAct
Issued guidance on multiple stimulus packages to benefit
the environment which included 179D
History of 179D Legislative Policy
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction
• Percentages established, interim ltg rule
• Performance Rating Method (Appendix G)
• Approved software programs
Notice
2006-52
• Extended eligible dates for 179D
• Pass through deduction for designers
• 20/20/10 percentages established
Notice
2008-40
• Extension and clarification of 179D
• 25/15/10 percentages established
Notice
2012-26

9. History of Percentages to Qualify
2008
January 1, 2006-December 31, 2008
2013
January 1, 2006-December 31, 2013
2016
February 24, 2012-current
Lighting-16.33%
HVAC-16.33%
Bldg Env-16.33%
Lighting-20%
HVAC-20%
Bldg Env-10%
Lighting-25%
HVAC-15%
Bldg Env-10%
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction

10. • Retroactive renewal 2015 and Extension through 2016!
• Starting in 2016, buildings placed in service in 2016 are
compared to a baseline referencing ASHRAE 90.1-2007
rather than the previous ASHRAE 90.1-2001 Standard
• Taxpayers were able to file for eligible deductions in 2015
• Taxpayers can plan for buildings being put in service in 2016
• Open year tax returns must be amended to obtain the tax
deduction for prior years
Recent Congressional budget
extends 179D tax deduction!
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction

11. • Drawings:
• Electrical-Lighting
• Mechanical Schedules and Drawings
for HVAC equipment
• Architectural Drawings for building
footprint
• Building Envelope information on
walls, and windows, roofs, floors
• Lighting Schedules
• Building Envelope Materials include
Glazing, Roofing Systems, Insulation
• Mechanical Equipment Schedules
• Specifications on HVAC Systems, Lighting
and Building Envelopes
Documents Required for Study
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction

12. What is required to qualify for the 179D Deduction?
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction
1
• 179D Studies must be completed by a Qualified Individual and Third Party Verifier
2
• A Qualified Individual is licensed as a Professional Engineer, Architect, or Contractor
in the state in which the building is located
3
• A Building Simulation or Energy Model is created (using an IRS approved software)
and the percentage savings are determined
4
• For lighting only (with bi-level switching), the Interim Lighting Rule can be applied
and the LPD (Lighting Power Density) can be completed using a spreadsheet

13. What is required to qualify for the 179D Deduction?
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction
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• In the case of a Designer seeking the deduction as a Pass-Through,
the government entity must provide a signed “Allocation Letter”
6
• All energy efficient equipment installed must be listed in the report
7
• A site walk is required to verify installation of specified energy
efficient equipment

14. • Report is created listing the building
information, building name, address, the
name of the certifier, the percentage
savings, and a list of all the energy efficient
equipment specified
• A site walk is completed to verify specified
energy equipment is installed
• The amount of the deduction is reported
on the owner or designer’s tax return
• The report is submitted with the tax return
and the energy model and all other
documentation is kept by the owner with
their filed tax documents
What is required to complete a certification?
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction

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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction
• 50,000 SF Supermarket updated to include newT5
lighting and more efficient chillers and boilers
• Qualifies for lighting only
• 50,000 SF* $0.60/SF = $30,000Tax Deduction
• Reduces basis and accelerates depreciation
• Can be combined with a Cost Segregation Study to
further accelerate depreciation
CASE STUDY-
Lighting:
Commercial Real
Estate Owners

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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction
• 50,000 SF Supermarket updated to include new LED
lighting and more efficient chillers and boilers
• Fully Qualifies
• 50,000 SF* $1.80/SF = $90,000Tax Deduction
• Reduces basis and accelerates depreciation
• Can be combined with a Cost Segregation Study to
further accelerate depreciation
CASE STUDY-Fully
Qualifies:
Commercial Real
Estate Owners

17. • 50,000 SF High School updated to include newT5
lighting and more efficient chillers and boilers
• Qualifies for lighting only
• 50,000 SF* $0.60/SF = $30,000 IncomeTax
Deduction!
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction
CASE STUDY-
Lighting:
Designer of
Public Building

18. • 50,000 SF High School updated to include new LED
lighting and more efficient chillers and boilers
• Fully Qualifies
• 50,000 SF* $1.80/SF = $90,000 IncomeTax
Deduction!
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction
CASE STUDY-Fully
Qualifies:
Designer of
Public Building

19. • New lighting is the easiest way to qualify for
the program
• Qualifying is based on the percentage the
building is more efficient than a Baseline
building based on ASHRAE code 2001-90.1
• The Baseline building is not the building prior
to improvements, it is a model of the
building based on ASHRAE 2001-90.1 (or
ASHRAE 2007-90.1 for buildings placed in
service in 2016 or later)
IMPORTANT THINGS TO REMEMBER ABOUT 179D
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction

20. • 179D is a Tax Deduction, not a Tax Credit.
• Buildings larger than 75,000 SF are
compared to a VAV system baseline, which
is an efficient system. So it is difficult to
beat the baseline by 15% unless the
installed system is highly efficient
• The amount of the deduction can’t be
more than the cost of improvements
IMPORTANT THINGS TO REMEMBER ABOUT 179D
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SECTION 179D
Commercial Real Estate Energy Efficient Tax Deduction

21. C O N TA C T
Kari Mueller, PE LEED AP | 1(844) 323-3232 | kari@energy-ce.com