Energy Policy Act 2005
IRC § 179D Tax Deductions for
owners of Energy Efficient Buildings
IRC § 179D - WHAT IS IT?
An IRS Code section that allows for a federal
deduction for the installation of energy efficiencies in
real property. Effective dates from 1.1.2006 through
Energy efficiencies are considered to be: Lighting,
HVAC (including Water Heater), Envelope or all of
these as “Whole Building”. The deduction for each is
$.60/square foot for: Lighting, HVAC and Envelope
or $1.80/square for Whole Building
WHAT MAY QUALIFY?
Commercial properties for retrofit, improvements,
new construction or tenant-owned assets – owners
of the assets may take the deductions.
Public buildings (government: federal, state, county,
municipal, etc..) which have implemented energy
efficiencies while tax exempt may “Allocate” the
deduction to the “primary designer(s)” Architects,
Lighting Designers and Mechanical Engineers.
Is the project placed in service between 2006
Is the project installed in the U.S. or its
Is the project within the scope of
ASHRAE Standard 90.1-2001, which
includes new construction and
renovations for commercial buildings or high-
rise residential buildings
WHAT DOES NOT QUALIFY:
STATUS OF PROPERTY/ASSET
1.Usually anticipating a tax liability – or has a tax
liability. The deduction may be carried forward.
2. Has paid taxes in the year in which the
construction/retrofit/improvement was put into
service. In this case the tax benefit may be applied
to current or future tax liability or refunded by the IRS
CATCH UP SINCE 2006?
The IRS allows the private sector owner of the assets
to go back in time (even though the years may be
considered “closed” tax years) to 1.1.2006 to “catch up”
on the missed deductions.
This is completed via a “Change in Method of
Accounting” IRS Form 3115. No tax return amendment
is necessary, but is available for open years.
Lighting as a stand-alone (Interim Rule):
Analysis determines whether the watts per
square foot and the necessary controls are
HVAC or Envelope or Whole Building:
Engineering analysis (modeling using IRS
required, DOE approved software) to
determine which system(s) qualify for federal
What is needed for a Benefit Analysis
Square footage of proposed/installed project
Specific usage of the property
Number of fixtures of proposed/installed project
Watts per fixture of proposed/installed project
Cost of the proposed/installed project
Amount of rebate
Date of proposed/installed project
Square footage of proposed/installed project
Plans/drawings of the project
Submittals and specifications
Date the project/retrofit/improvements were
put in service
Cost of the project
Discussion with client or client’s representative regarding the scope
of the project.
Discussion between client’s tax advisor and Jordan Taylor, CPA –
CRG National Tax Director to insure that client may take and use
For LIGHTING ONLY – determination that the project qualifies
For HVAC/ENVELOPE/WHOLE BUILDING – Letter of Intent
(insures property qualifies with no cost to client should the property
fail to meet requirements).
CRG engineering group models (HVAC/ENVELOPE/Whole BUILDING).
Once qualification for system(s) an agreement is authorized and deposit is
Site visit is arranged (every site must be visited – per IRS).
Once site visit is completed – documentation is reviewed by CRG.
Assembly of Report for client.
Report undergoes engineering and accounting quality review.
Report is assembled and delivered to client and designees (typically tax
The owner of a warehouse facility of 130,000 square feet in New
York replaced the HVAC and lighting systems throughout the
The old systems were twenty years old and were no longer reliable
or performing properly, in addition, the owners wanted to improve
The cost of replacement for both systems was $423,000
The existing HVAC system was a roof installation and the lighting
system was a metal halide system. The new roof top HVAC system
was increased efficiency and the LED lighting system reduced
To install systems that would improve
efficiencies, reliability, and lower energy
To determine the incentives available to
To Capitalize on all tax opportunities
associated with energy efficiencies.
The local utility provided a cash incentive to the owner to help
pay for the cost of the new systems.
CRG provided baseline qualification analysis of the proposed
the HVAC system and lighting systems that indicated they were
eligible for potential tax deductions based on energy efficiency
through §179D of EPAct.
§179D allows for a $.60/square foot deduction for deduction for
each of the HVAC and Lighting systems when ASHRAE
Standard 90.1-2001 is exceeded by specific percentages
Based on the information provided by the
manufacturers of the HVAC and Lighting systems to
the warehouse owner, the warehouse owner
attained an efficient and reliable HVAC and lighting
systems that required less maintenance and was
able to take the full deduction amounting to $1.20
per sf totaling $156,000 in addition to the local
Because the HVAC and Lighting systems were
not fully depreciated. CRG determined the
remaining un depreciated value of the systems.
As a result, the owner of the building was able
to take an additional $78,000 in tax deductions
via the Tangible Property Regulations when
the new systems were installed
For a “pro bono” benefit analysis of your
energy efficient retrofits, improvements or
new construction contact:
Rich Maiolo - Direct 860.485.8589