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1. Can your business afford not to take advantage of these tax incentives?

2. Section 179D: Leveraging the Energy
Efficiency Deduction for Commercial and
Government Buildings

3. 179D Topics covered
• Evolution Of The 179D Deduction, And Future Outlook
• Material Terms Of The 179D Deduction
• Placed-In-Service Issues And IRS Guidance
• The Role Of Energy Studies

4. Energy Policy Act Of 2005
• What is EPACT ?
• What was congressional intent ?
• Impact of President Obama’s Better Building Initiative

5. Energy Policy Act Of 2005 (Cont.)
• Congress passed legislation in August 2005 to encourage property owners to
build energy efficient real estate properties, in order to promote reduction in
energy consumption. Service dates were from 1/1/06 through 12/31/08.
• The Emergency Economic Stabilization Act of 2008 (HR-1424), approved and
signed on Oct. 3, 2008, extended the benefits of the Energy Policy Act of
2005 through December 31, 2013.
• The ruling allows a tax deduction of up to $1.80 per sq. ft.
• The entity that funds the investment on a private property, or the designer
on a government-owned property, is eligible for the deduction.

6. Energy Policy Act Of 2005 (Cont.)
• For commercial buildings 2006-2013 (new buildings and renovations)
 Private buildings (benefits - owner/tenant)
Public buildings (benefits - architect/engineer/contractor)
Lighting/HVAC/envelope (roof/windows/insulation)
 $.60 $.60 $.60 = $1.80 per SF
 $100k SF = $180,000
 Model vs. ASHRAE 2001 90.1

7. Attention: Architects, Engineers And Contractors
For energy-efficient commercial building improvements (new build or
renovations) made by a public or government entity ...
• Examples: Schools K-
12, colleges, universities, civil, municipal, government, jails, military
buildings, etc.
• The IRS now allows the deduction to be allocated to the “person primarily”
responsible for designing the property and systems, in lieu of the public
entity.
• Fewer than 3% of taxpayers or design firms are aware of opportunity - AIA
Journals

8. Who Benefits?
• Owners or tenants who pay for new or improved, energy efficient
commercial buildings since 2006 and through 2013
• Designers of energy efficient properties or retrofits/installed efficiency in
publicly owned buildings
• Building and real estate communities indirectly benefit.

9. Eligible Properties
• New construction
• Upgrades, renovations and retrofits, improvements to lighting, HVAC, envelope (roof
, insulation, windows), energy performance contracting, CRA redevelopment
• LEED-certified buildings
• Green/energy-efficient buildings
• Commercial and residential (4-plus stories)
• Private and public sectors
• Types: Schools, government, office, retail, hospitality, industrial, manufacturing,
healthcare, parking garages
• Architects, engineers and contractors Placed in service since Jan. 1, 2006

10. In Summary, Maximizing The Benefits Of The Energy
Policy Act
• Generates money for investments
• Increase cash flow through minimizing tax liabilities and
• reducing insurance premiums
• Increases ROI and reduces payback periods on investments
• Important: Planning and execution

11. MATERIAL TERMS OF THE 179D
DEDUCTION

12. Energy Efficient Commercial Buildings
IRC Sect. 179D allows for an immediate deduction of up to $1.80/sq. ft. for
“commercial buildings” that achieve a 50% reduction in total energy and power
costs for lighting, HVAC and hot water systems, in comparison to 2001 energy
standards.
• Building envelope
• HVAC and hot water
• Interior lighting

13. Who Benefits?
• “Commercial buildings” includes
 Public and government buildings (e.g., schools, prisons)
 Typical commercial buildings (e.g., office, retail, industrial)
 Housing that is 4 stories or higher
• Must be situated in the U.S.
$$$

14. What type of contraction is Eligible?
 Ground-up construction
 Renovations and retrofits
 Applies to affected square footages (rate x sq. ft.)
 PIS from 2006 through 2013

15. Key Variables Considered in a
179D Study
• Building type
• Building size and number of stories
• Physical orientation
• Climate zone
• Utility rates

16. Tax Process & Consideration
• Process:
 Obtain certification package
 No special form required
• Reported on the “Other Deduction” line with a description of “Section 179D
Deduction
 Reduce depreciable basis
• Considerations:
 Deduction can reduce AMTI.
 Subject to 1245 recapture
 Can either amend or file Form 3115 to retroactively claim deduction
 Deduction limited to amount invested in energy efficient property

17. Certification Process
• Analysis of drawings and as-built specifications
• Energy simulation modeling or lighting analysis, using DOE-approved
software
• On-site verification
• Signed certification by qualified third party that meets all IRS requirements
 Independent Licenses Physical Engineer Firm must certify work

18. Practical taxpayer examples in
claiming the deduction for
different types of improvements

19. How Does The 179D Affect The Value Of A Design Firm?
A design firm with $10 Million per annum revenue Designs 500,000 sq. ft. of
public buildings a year
 Generating $750,000 a year in tax deductions
 $250,000 in cash (cash in hand, taxes paid
Assuming a 10-to-1 multiple, these deductions equate to $2.5 million in sales.
As a one-times-earnings multiple, this is an increase in the firm’s value.

20. Over $290,000 Energy Tax Deductions Claimed By
Building Owner

21. Over $119,390 Energy Tax Deductions Claimed By Owner
Hampton In, Gainesville:66,328 square feet
 Envelope: Insulated glass, double-pane thermal-break windows and doors, white reflective single-ply roofing systmem
 Lighting: Low-voltage fluorescent
 HVAC: Natural gas units, split-unit system, motion-activated room thermostat, continuous-glow hot water service

22. Over $45,691 Energy Tax Deductions Claimed By
Building Owner
Canon Stone Inc.
HVAC: 76,153 square feet (Direct gas fired heater)

23. Over $124,813 Energy Tax Deductions Claimed By Owner
Renaissance Plaza – San Antonio – Texas – 208,022 Square feet
 HVAC: Full $0.60 for HVAC and chiller unit

24. Over $292,137 Energy Tax Deductions Claimed By Architect
BLRB architects

25. Over $46,710 Energy Tax Deductions Claimed By Architect
Conference Center, Texas – 77,851 square feet
 HVAC: Full $0.60 for HVAC and chiller units

26. Public Buildings And The 179D Tax Deduction
Contractors and Designers can qualify
§179D(d)(4): In the case of energy efficient commercial building property
installed on or in property owned by a Federal, State, or local government or a
political subdivision thereof, the Secretary shall promulgate a regulation to
allow the allocation of the deduction to the person primarily responsible for
designing the property in lieu of the owner of such property. Such person shall
be treated as the taxpayer for purposes of this section.

27. 179D Energy Efficient Tax Deduction:
Public Sector Green Building Projects
• The Energy Efficient Commercial Building Tax Deduction is a federal tax
incentive that allows owners of commercial property to deduct from their
taxes up to $1.80 per square foot for qualifying energy efficient property. It
also contains a provision that allows public entities to give this tax incentive
to the designer of the energy efficient property, since public entities do not
pay taxes. This provision provides federal, state, and local entities a cost-
effective way to improve energy efficiency in new or retrofit projects.
• The American Institute of Architects represents over 80,000 architects and
emerging professionals across the world. As a leader in the design and
construction industry, the AIA supports incentivizing energy efficiency in a
myriad of ways, but particularly through provisions like 179D, that have
proven to be quite successful in the field.

28. Public Sector Green Building Projects (Cont.)
The Energy Policy Act of 2005 created the Energy Efficient Commercial Building Tax Deduction,
recognizing that a substantial portion of U.S. energy consumption is attributable to commercial
buildings, and to provide building owners with a tax incentive to help offset the costs associated
with enhancing the energy efficiency of commercial buildings. The provision, codified in 26 U.S.C
§179D and therefore sometimes referred to as “179D”, allows the owner of a commercial building
to deduct the installation costs of energy efficiency enhancements, up to $1.80 per square foot.
Moreover, to encourage the public sector to utilize these same energy efficient enhancements,
Congress provided a federal, state, or local government owner of a commercial building an election
to allocate the tax deduction to the primary person responsible for designing the technical
specifications for the installation of energy efficient enhancements.
The overarching purpose of the deduction is to encourage energy efficiency by creating a tax
incentive intended to benefit a commercial building owner. If the owner of a commercial building is
a private entity, the deduction may be taken by the building owner and is not allocated to the design
firm. However, in cases where the building owner is a public entity, which does not pay taxes, the
law allows for this deduction to be allocated to the design firm. Many agencies have used this
allocation to finance energy efficient enhancements, despite not being able to receive a deduction
directly for these enhancements.

29. The AIA and 179D
The AIA strongly supported this provision when it was enacted. AIA also helped form a partnership with other concerned stakeholders
and through this partnership, developed implementation recommendations for building owners to obtain this tax deduction. In 2008,
the AIA helped pass legislation to extend the life of the deduction so that it covers property placed in service by December 31, 2013.
That same year, at the AIA’s urging, the IRS issued guidance on how the deduction could be allocated to the designer.
The guidance established that a designer, for purposes of this section, included an “architect, engineer, contractor, environmental
consultant, or energy services provider who creates the technical specifications for a new building or an addition to an existing
building that incorporates energy efficient commercial building property.” This definition did not include someone that merely installs,
repairs, or maintains the property.
Also, before a designer may claim the § 179D deduction, with respect to property installed on or in a government-owned building, the
designer must obtain the written allocation from the “authorized representative.”
It also established that, in cases where there is more than one designer, the owner may either allocate the deduction to the primary
designer, or, at the owner’s discretion, allocate the deduction amongst all of the designers.
The AIA was pleased with the initial clarification that this IRS guidance provided, and many agencies on the Federal and State level
followed suit by issuing policies on the allocation of this deduction.
Federal agencies that already have established policy regarding the allocation of the 179D deduction include the Department of
Defense and the General Services Administration. These policies guide project managers in understanding to whom the deduction
should be allocated and the standard approach in doing so. State agencies also have established state-wide policy regarding this
allocation, including North Carolina and Texas.

30. How Does 179D Work?
A building qualifies for the full $1.80 deduction when the reduced energy use of its heating, cooling, ventilation,
hot water, interior lighting systems, and building envelope is certified to exceed ASHRAE Standard 90.1-2001 by at
least 50 percent.
Partial deductions of $0.60 per square foot are available for each individual component certified to reduce total
energy use by 16 2/3% or more beyond ASHRAE 90.1-2001. These individual components are the interior lighting
system; building envelope (defined as the outer shell used to protect the indoor environment); and the heating,
cooling, ventilation and hot water system.
When the owner of the building is a public entity, the person(s) primarily responsible for designing the
specifications of the qualifying components may request an allocation of this deduction. The designer will typically
request a “letter of intent” so that he/she may begin the process of designing and certifying the property with the
assurance that the public entity will follow through with the allocation afterwards.
Once the building is certified to meet energy requirements by a qualified individual using IRS- approved software,
the agency may allocate this deduction by simply signing an allocation letter. The agency must reduce its “basis”
by the amount of the allocated deduction, which is a bookkeeping requirement typically taken care of by the
agency accountants.
Public entities that allocate this deduction incur zero liability for doing so. If a design firm is audited, and the
allocation is reviewed, the public entity will not be held accountable for any denied deductions, and likely—will
not have any involvement in the matter whatsoever.

31. Who Qualifies As The Designer/Contractor?
• Sect. 3.02 of Notice 2008-40 defines a designer of government owned
buildings as:
 A person who creates the technical specifications for installation of
energy efficient property
 May include architect, engineer, contractor, environmental consultant or
energy services provider
• It does not include a person that merely installs, repairs or maintains the
property.

32. What If There Are Multiple Designer/Contractor?
• Sect. 3.03 of Notice 2008-40 provides guidance on allocating the deduction.
 If more than one designer is responsible for creating the technical
specifications for installation of energy efficient commercial building
property , the owner of the building shall:
• Determine which designer is primarily responsible and allocate the
full deduction to that designer, or
• At the owner's discretion, allocate the deduction among several
designers.

33. How Does The Designer/Contractor Obtain The Deduction?
• Sect. 3.04 of Notice 2008-40 provides guidance on obtaining the allocation from the
public entity.
 The allocation must be in writing and contain all of the required information set
out in this section.
• Name, address and telephone number of authorized representative of the owner of
the building
• Name, address and telephone number of authorized representative of the designer
• Address of building, cost of property, date property was placed in service, and
amount of deduction being allocated to the designer
• Signatures by both parties, including a declaration signed under penalties of perjury
by authorized representative of the owner of the government-owned building .

34. How Much Of A Deduction Can The Designer/Contractor
Get?
• Sect. 3.06 of Notice 2008-40 provides guidance on the tax consequences of the
allocation.
 The maximum amount of the deduction that can be allocated is equal to the
lesser of the cost of the property to the owner, or the $1.80 per square foot (if
all three systems qualify).
 The designer has no requirement to include any amounts in income for future
years, or reduce any future years’ deductions by an amount equal to the 179D
deduction received.

35. What Types Of Projects Are Good Candidates for
Designer/Contractor?
• New construction
• Upgrades, renovations or retrofits
• LEED-certified buildings
• Currently must be a government-owned building; non-profit entities
currently not allowed
• Public schools, public universities, federal, state, city, township owned
properties

36. PLACED-IN-SERVICE ISSUES, AND
IRS GUIDANCE

37. What If I Did Not Take The 179D Deduction On My
Original Return?
Example: An automotive parts manufacturing company built a new 400,000-
square-foot, state-of-the-art facility on Jan. 1, 2007. No 179D study was
performed, and the lighting, HVAC and envelope were set up on a 39-year
depreciable life. The taxpayer filed its 2007 return on Sept. 15, 2008. The
company could have received the maximum deduction under Sect. 179D of
$720,000 ($1.80 X 400,000) had the study been performed in 2007. Instead, it
has taken $73,846 of depreciation ($720,000/39 years X 4 tax years) through
2010. The statute is closed to amend the 2007 return. Are there any options
available to this company?

38. Revenue Procedure 2011-14
• Prior to Rev. Proc. 2011-14, this company would have been out of luck. The
only option was to claim the deduction on an amended tax return at the
time.
 §6511 generally only allows returns to be amended to claim a refund for
three years after the date of filing a return.
 In our example, the automotive parts manufacturer would not have had
any means to go back and take the 179D deduction, since the project
was placed in service during 2007 and the statute for filing a refund
claim expired on Sept. 15, 2011.

39. Revenue Procedure 2011-14 (Cont.)
• Rev. Proc. 2011-14 was issued on Jan. 10, 2011 and now makes it possible to
claim a 179D deduction for years closed by statute under designated
automatic accounting method change No. 152.
 This, in effect, allows a taxpayer to catch up the deduction in the current
year, using a change in accounting under appendix Sect. 8.04 of the Rev.
Proc. 2011-14.
 Under our original example, the 481(a) adjustment would have been a
negative adjustment of $646,154 ($720,000 - $73,846).

40. Revenue Procedure 2011-14 (Cont.)
• Requirements of Rev. Proc. 2011-14
 Sect. 5.04 requires a §481(a) adjustment which, in the case of a 179D
deduction, should be a negative adjustment that can be taken
completely in the year of change.
 Sect. 6.02 requires that ordinarily, a Form 3115 be filed to apply for a
change in accounting method. However, this Rev. Proc. allows certain
changes to be made with a statement in lieu of a Form 3115. The 179D
change under appendix Sect. 8.04(3) is one such change.

41. Revenue Procedure 2011-14 (Cont.)
Requirements of Rev. Proc. 2011-14 (Cont.)
 Sect. 6.02(4) provides guidance on what is required in the statement to
be filed in lieu of Form 3115. It provides that the automatic change
number of 152 be included on the top of the first page, directly above
the taxpayer’s name and federal EIN. It also requires a detailed
description of the tax treatment of the property under the present and
proposed methods of accounting.
 Also, no duplicate copy is required to be sent to the national office.

42. Revenue Procedure 2011-14 (Cont.)
• Requirements of Rev. Proc. 2011-14 (Cont.)
 Appendix Sect. 8.04(4) also requests a copy of the independent
certification required under Notice 2006-52 and Notice 2008-40 be
attached to the application statement.
 Sect. 7.01 provides audit protection under this Rev. Proc. except as
otherwise provided.
 Appendix Sect. 8.04(5) states no audit protection is provided in
connection with the 179D accounting method change.

43. Revenue Procedure 2011-14 (Cont.)
• Unsettled issue: What is a change in accounting?
 Under the §1.446 regulations, the accounting of an “item” is an
accounting method.
• The question then becomes: Is each building an item, or should all
qualifying buildings be a single item of accounting for purposes of
§179D?

44. THE ROLE OF THE ENERGY
STUDIES

45. Improve Building Value

46. Savings Increased With Complimentary Tax Strategies

47. Case Study Of Other Tax Benefits

48. This Will Provide ...

49. Abandonment Deduction
Abandonment: When assets are retired or removed, they are
taken off a company’s books (when you re-light a facility, you
essentially remove the old lighting).
This tax incentive can be substantial!

50. Accelerated Deduction

51. Accelerated Deduction (Cont.)

52. Total Tax Deductions

53. Converted To N.A.T.

54. Clients Results Explained

55. CONTACT US TODAY
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Wellington, FL 33414
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