Intended to promote the design, build, and renovation of commercial buildings that reduce energy consumption, the Energy Efficient Commercial Building Tax Deduction, Section 179D, is a tax incentive that needs to be on an AEC firm's radar.
The Section 179D tax deduction allows architectural, engineering, and construction firms to claim a tax deduction from any new design, build or renovation projects they completed for any government or tax-exempt business.
Section 179D allows AEC firms to claim up to $5 per square foot if energy-efficient HVAC units, building envelopes, and LED lighting were installed during their new build or renovation projects.
The 179D Tax Deduction has been in effect since 2006, and thanks to the Consolidated Appropriations Act of 2021, this tax deduction is now permanent.
What type of AEC projects qualify for the Section 179D tax deduction?
Tax-exempt newly constructed or renovated commercial buildings that installed energy-efficient upgrades to the HVAC, interior lighting, or building envelope system could qualify for this deduction.
There are three main qualifying elements for Architectural, Engineering, and Construction firms who complete new builds or renovation projects on government or tax-exempt commercial buildings:
- Qualified Activity:
- Creation of technical specifications.
- Documented thought leadership on the HVAC, interior lighting, or building envelope systems on the government or tax-exempt commercial building.
- Allocation Letter: Since these projects are completed for a non-tax paying entity, the allocation letter passes the 179D deduction through to the AEC firm that pays taxes and who worked on the commercial building project.
- Technical Analysis of the Commercial Building:
- 3D energy analysis to determine overall energy efficiency and deduction rate (up to $5/sf for Tax Year 2023).
Who can claim the incentive?
The 179D tax incentive can be claimed by a building owner or tenant, depending on who pays for and owns the energy-efficient commercial building property.
For AEC firms who work on government and tax-exempt commercial buildings, the incentive can be passed through to the AEC firm that worked on the design, build, or renovation of the tax-exempt commercial building.
What types of buildings are eligible for the Section 179D tax deduction?
All commercial buildings, parking garages, and multi-family residential buildings (greater than three stories), whether privately or government-owned, may qualify for the deduction.
The property must be located within the United States.
How to claim the Section 179D deduction
To claim the 179D deduction, a Section 179D compliance study ( also known as a Section 179D Certification) must be performed by a qualified independent firm, like ABGi, or an individual who then certifies the deduction.
We are Industry Leaders in the Section 179D Deduction for AEC Firms
ABGi provides the resources and expertise to qualify (or disqualify) businesses at no-cost and ensures they secure their Section 179D Tax Deduction per the requirements of the IRC code Section 179D.
Our 179D team of energy, finance, tax, and engineering professionals, provide turnkey services that include energy modeling, visual site inspections, certifications, and required IRS tax documents.
We perform a complete Section 179D study in accordance with the IRS guidelines including:
- Obtaining the Allocation Letter from the proper government or tax-exempt official.
- Energy modeling required to calculate the deduction
- On-site inspection that's required to certify the deduction
- Substantiate and document the delivery of the certification
- Coordinate with your tax department or independent accounting firm
- ABGi provides full audit defense within this turnkey 179D service, utilizing our elite 179D tax controversy attorneys
