How to get started | The Process | 179D | 45L | FAQ
How to Get Started
Government Designers & Contractors
First lets answer a few questions:
- Has your company been involved in the design, construction or retrofit of government owned buildings in the last 4 years?
- Is your company and/or its’ shareholders in the position to benefit from a tax deduction?
If the answer to both these questions are YES, fill out the form below. We will be contacting you as there may be some great opportunities for you to benefit from the 179D tax deduction.
Commercial Building Owners
Lets answer a few questions:
- Can your company and/or it’s shareholders currently benefit from an accelerated depreciation deduction?
- Have you built new or made improvements to your building(s) since 2006?
- Do you plan on holding your buildings for more than a few years?
If the answer to these questions are YES, fill out the form below. We will be contacting you as there may be some great opportunities for you to benefit from the 179D tax deduction.
Residential Building Owners and Developers
Lets answer a few questions:
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- Can your company and/or it’s shareholders currently benefit from a tax credit?
- Have you built new or renovated residential units since 2006?
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If the answer to these questions are YES, fill out the form below. We will be contacting you as there may be some great opportunities for you to benefit from the 179D tax deduction.
About Our Process
ABIS strives to create a streamlined and transparent process to ensure our clients can maximize their benefits with minimal internal costs and efforts.
1. Initial Consultation
An initial consult with ABIS Advisor will result in an in depth evaluation of your companies potential of benefitting from a 179D Tax deduction or a 45L Tax Credit.
2. Feasibility Study
Our professional engineering team will conduct a feasibility study allowing us to pre-qualify your project for the EPAct 179D Tax Deduction or 45L Tax Credit. Minimal information about the energy efficient property will be requested from the property owner to do so.
3. Notice to Proceed
After pre-qualifying your building for the EPAct 179D Tax Deduction or the 45L Tax Credit and their financial benefit, you will authorize a notice to proceed and perform the energy and certification study.
4. Engineering and Inspection
At this point, we commence with the IRS required Engineering Analysis and Site Inspection. All proper documentation and analysis will be gathered to satisfy all requirements of 179D or 45L of the I.R.C.
5. Review and Delivery of Final Certification
After completion, an electronic copy of the final report will be provided, allowing it to be reviewed by you and your tax professional. Upon approval, a signed electronic copy will be delivered.
Learn About 179d
Section 179D of the Internal Revenue Code (IRC) is an engineered based tax incentive available for the reduction of energy and power costs in commercial buildings. The tax provision was initially enacted under the 2005 Energy Policy Act (EPACT) and allows for a tax deduction of up to $1.80 per square foot. The 179D Tax Deduction specifically applies to those commercial buildings that notably reduce their interior lighting energy costs, as well as heating, cooling, and building envelope. Buildings can partially qualify for $0.60 for HVAC, $0.60 for building envelope, and $0.60 for Lighting systems.
Qualifying Requirements
Section 179D requires the taxpayers building to meet or exceed a 50% savings in energy and power costs when compared to a theoretical ASHRAE 90.1-2001 baseline building. If the target of 50% savings is met, the building will qualify for $1.80/SF (capped at the costs of the capitalized improvements).
For buildings which do not meet the 50% savings, the tax provision also allows for partially qualifying systems.
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- $0.60/SF for HVAC systems meeting 15% savings
- $0.60/SF for Lighting systems meeting 25% savings
- $0.60/SF for Building Envelope systems meeting 10% savings
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Additionally, the Interim Lighting Rule allows for lighting systems to qualify for 30¢-60¢per square foot for a 25%-40% savings in Lighting Power Density (LPD) compared to ASHRAE 90.1-2001 LPD standards.
Certification Requirements
- The energy and power costs savings calculations must be performed with a Dept. of Energy approved software.
- Field inspections must be performed after the energy efficient property has been placed into service in accordance with NREL Guidelines
- Certifications and inspections must be completed by a qualified Engineer or Contractor in the Jurisdiction of the qualifying building.
- The taxpayer shall maintain the certification in their records to establish the entitlement to, and amount of, the deduction claimed.
Government Owned Buildings
Governments are non-taxable entities and are unable to benefit from the section 179D tax incentive. Because of this, the IRS established guidance in 2008 allowing governments to allocate the deduction to the parties involved in the design of the energy efficient systems. In addition to the certification, the taxpayers receiving an allocated deduction must retain an “Allocation Letter” in their records.
Allocation Letter
On April 7, 2008, the IRS published Notice 2008-40 providing guidance for the Allocation of the deduction to designers. The primary points addressed in the allocation are:
- Verifying the parties involvement in the project
- Cost of property installed
- The year the property was placed into service
- The amount of the 179D deduction being allocated
What Buildings Qualify?
- Commercial Buildings of any type
- Residential Buildings of 4 Stories or more
- Government-owned buildings
- Parking Garages
Who can benefit?
- For-profit owners of commercial buildings
- For-profit owners of Apartment Buildings (4 or more stories)
- Designers of Government Buildings
- Architects
- Engineers
- ESCO’s
- Energy Consultants
Time Frame
For Commercial Building Owners, the section 179D deduction may be claimed for new construction or improvements placed into service between January 1, 2006, and December 31, 2016. Form 3115, Change in Accounting Method, may be used to retroactively take the deduction in current year tax filings and avoid amending previous year returns.
The designers of government-owned buildings are able to take the 179D deduction for all “open tax years” (generally 3 years from the date of filing). For property placed into service in previous years, the taxpayers are required to amend their returns.
Additional 179D Resources
- Energy Policy Act of 2005: Original bill enacting Section 179D
- Title 26 USCS §179D: Original Tax Law
- 2006-26 IRB; Notice 2006-52; Initial IRS guidance setting forth the process allowing building owners to take the 179D Deduction; including certification requirements, inspections, and energy modeling guidelines.
- 2008-14 IRB; Notice 2008-40: Allows Government buildings to allocate to designers, expands on the specific technologies the DOE must approve, adjustments to the partially qualifying percentages (10% for building envelope), also extends 179D to the end of 2008.
- 2011-04 IRB; Rev. Proc. 2011-14: Primarily allows for the use of Form 3115, Change in Accounting Method. Allows taxpayers to take 179D deductions without having to amend prior year tax returns. For both private and public sector buildings.
- 2012-17 IRB; Notice 2012-26; Adjusts the partially qualifying percentages to 15% for HVAC and 25% for Lighting.
- 2012-41 IRB; Rev. Proc. 2012-39: Clarifies that designers taking the 179D deduction for Government-owned buildings may not use Form 3115, Change in Accounting Method.
- Public Law 110-343: Emergency Economic Stabilization Act of 2008: Extends 179D through the end of 2013.
- Memorandum; AM2010-007: Addresses the application of the 179D deduction to flow through entities.
- Public Law 113-295: Tax Increase Prevention Act of 2014; Extends 179D through the end of 2014.
- NREL /TP-550-40467: Energy Savings Modeling and Inspection Guidelines for Commercial Building Federal Tax Deductions
- Department of Energy List of Approved Energy Modeling Software
- IRS Form 3115, Change in Accounting Method
- Public Law 114-113: Consolidated Appropriations Act, 2016; Extends 179D through the end of 2016 and increases the ASHRAE 90.1-2001 efficiency standards to ASHRAE 90.1-2007 for property placed into service after January 1st, 2016
- Public Law No: 115-123: Bipartisan Budget Act of 2018; Extends 179D through the end of 2017.
Learn About 45L
The 45L Tax Credit is equal to $2,000 per unit for qualified owner-occupied or rental dwelling units that meet certain energy-savings standards.
Construction or rehabilitation of a unit must be substantially completed after August 8, 2005 and the until sold or leased before the end of 2017. The tax credit is claimed by the developer (known as Eligible Contractor) in the year which the unit is occupied.
Eligible Properties
Qualifying properties are comprised of a dwelling unit or units. A dwelling unit is defined as one or more rooms including a kitchen and designed as a unit for occupancy by one family for the purpose of cooking, living and sleeping. In order to meet the requirements of Section 45L, it must also be 3 stories or less above grade and may include apartments, condominiums, assisted living facilities, student housing dwelling units, townhouses, and single family homes.
The $2,000 tax credit is achieved for “each” dwelling unit within the buildings.
Each unit must meet a level of energy efficiency that is higher than 2006 IECC standards. Many newer or rehabbed developments already exceed these standards based on recent energy standards and building codes. We recommend that any apartment or condominium project developed (new construction or rehabilitation) within the past four years to be evaluated for the 45L Tax Credit,
Who is the Eligible Contractor?
The 45L credit is available to an eligible contractor in the year the certified dwelling units are leased or sold. Previously, there was some confusion as to who qualifies as the eligible contractor with respect to the home. For the purposes of 45L, a person or company must own and have basis in the qualified energy efficient home during the construction to qualify as the eligible contractor with respect to the home. For example if a person hires a third party contractor to construct the home owns and has basis in the home during its construction, the person that hires the third party contractor is the eligible contractor and the third party contractor is not the eligible contractor.
Certification Requirements
An eligible contractor must obtain certification from an independent eligible certifier before claiming the energy home credit with respect to the dwelling unit. An eligible certifier is a person not related to the eligible contractor that has been accredited or otherwise authorized by the Residential Energy Services Network (RESNET) or an equivalent rating network. The certifier conducts computer modeling and on-site testing and prepares a certification package with declaration that under penalties of perjury the certifier believes that the facts presented in the certification are true, correct and complete. The fee for certification is typically charged on a per unit basis.
FAQ
179D Tax Benefits can be a complicated series of requirements and savings. Below are some of the most frequently asked questions we have received. If you want to take advantage of 179D Tax Benefits, review these questions.
What is 179D?
Section 179D is an engineered based tax incentive available for the reduction of energy and power costs in commercial buildings. The incentive was initially enacted under the 2005 Energy Policy Act (EPACT) and allows for a tax deduction of up to $1.80 per square foot. The 179D Tax Deduction specifically applies to those commercial buildings that notably reduce their interior lighting energy costs, as well as heating, cooling, and building envelope. Buildings can partially qualify for $0.60 for HVAC, $0.60 for building envelope, and $0.60 for Lighting systems.
What types of buildings can qualify?
- Commercial Buildings of any type
- Apartment Buildings of 4 Stories or more
- Government owned buildings
- Parking Garages
What type of projects can quality for 179D Tax Deduction?
The section 179D tax incentive was developed with a technology neutral approach. In general, new construction as well as retrofits with improvements made in a building’s lighting, HVAC, or envelope systems which reduce energy consumption and can be properly modeled by one of the DOE approved software, can qualify. These include energy management systems, VFD’s, heat recovery, motion sensors and many others.
What is required to take a Section 179D Deduction?
The IRS has provided guidance on the requirements needed to satisfy a Section 179D Deduction. ABIS will provide all the documentation meeting and exceeding these requirements.
Can a Nonprofit quality for a 179D Deduction?
As of 2016, nonprofit organizations cannot benefit from the 179D incentive. The allowance of an allocated deduction to designers and contractors is specific to government entities only. There have been several proposed bills in congress allowing for nonprofits to allocate the deduction similar to governments, but none have yet been passed. Feel free to contact us to stay current on 179D legislative updates.
Do outdoor and parking lot lights qualify for 179D?
Lighting systems eligible for a 179D deduction are specific to the interior of buildings only.
Does a 179D Deduction affect my state taxes?
Although many states do allow for federal expensing and depreciation provisions such as 179D, the current treatment should be verified on a state by state basis.
Has my CPA already performed the 179D Tax Deduction?
It is possible that your CPA has taken other deductions but not necessarily the 179D Tax Deduction. The deduction is an engineering based approach that CPA’s typically are not qualified to perform in their day to day functions. We would be happy to discuss this further with your CPA and provide any information that your CPA may want regarding the deduction.
Is there a limit on the amount of a 179D deduction I can take?
The only limitation on a section 179D deduction is $1.80/SF for the qualifying building without exceeding the basis (or capitalized cost) of the energy efficient property.
Can I claim the 179D Tax Deduction on a building more than once?
Tax code and several IRS publications state that with respect to any building for any taxable year shall not exceed the excess of $1.80/SF and the aggregate amount of the deductions with respect to the building for all prior taxable years. In other words, a building may take several 179D Deductions, but no more than $1.80/SF overtime (e.g. $0.60/SF multiple times in different years).
Do I have to amend my returns for property placed in service in previous years?
For commercial buildings owners, a Change in Accounting Method Form 3115 may be used to take a 179D deduction in the current year tax filing to avoid amending previous year tax returns. For designers/contractors of government-owned buildings, it is required to amend tax returns for projects which were placed into service in a previous year.
If I purchased an energy efficient building, can it qualify for a 179D deduction?
In order to benefit from the 179D tax incentive, the building owner must have installed property as part of a plan designed to reduce the total annual energy and power costs. Simply purchasing an existing energy efficient building will not meet these requirements.
I want to take advantage of the 179D Tax Deduction, what’s the next step?
Contact ABIS today and we will get you started. After a brief conversation determining viability, a 179D adviser will initiate the process for a full energy and financial benefit analysis.
How long does the process take?
A typical time frame for a full 179D Study is 4-6 weeks. Projects with full sets of design documents and immediate access for inspections will often result in shorter turn around times. For projects with shorter deadlines, please contact us for an assessment.
What is your audit defense policy?
ABIS provides full audit defense without limits for all certifications performed.
What information do you need to certify a building for a 179D Deduction?
ABIS is committed to limiting our clients internal efforts and costs when pursuing a 179D certification. Any project information which cannot be effortlessly provided will be field gathered during the site inspection.
Does a 179D Allocation affect a government building owner?
Government building owners are required to reduce the basis of the energy efficient commercial building property by the amount of the 179D deduction allocated. Because it is not typical for a state agency to file an income tax return or to keep tax depreciation records, governments should not be at all affected by adjusting tax basis in the property. GAAP books and records are not affected by a tax basis reduction.
On Government Buildings, how do I know if someone has already claimed a 179D Tax Deduction?
Each government agency will have their own internal process on managing and tracking the allocation of Section 179D for their buildings. When a designer/contractor receives a signed allocation letter from a government building owner representative, they will be treated as satisfying the requirements.
Who must sign the allocation letter?
IRS guidance simply states that an “authorized representative of the owner of the government-owned building” must sign the declaration of the allocation letter. Typically, this would be any personnel familiar with the project and having the ability to verify information such as completion date and cost of the project.
45L Tax Credit
Below are some of the most frequently asked questions we have received. If you want to take advantage of of the benefits, review these questions.
What is the 45L Tax Credit?
Section 45L is an engineered based tax credit available to builders and developers for the reduction of energy usage in residential buildings. The incentive was initially enacted under the 2005 Energy Policy Act (EPACT) and allows for a tax credit of $2,000 per dwelling unit.
What are the qualifying requirements?
1. Qualifying units are required to have been sold or leased for use as a residence during the tax year.
2. Qualifying units must meet or exceed a 50% reduction in savings compared to 2006 IECC Standards
3. The units must be modeled by a HERS Rater (or equivalent) substantiating the savings.
What type of residential buildings may qualify?
In General, a dwelling unit is defined as one or more rooms including a kitchen and designed as a unit for occupancy by one family for the purpose of cooking, living and sleeping. In order to meet the requirements of Section 45L. 1. Single Family Homes 2. Multi-Family Homes 3. Apartment or Condo Buildings of 3 Stories or less
Can Taxpayers Amend tax return in order to benefit from a Section 45L Tax Credit?
Yes. In General, tax returns may be amended up to 3 years from the date the return was filed.
Can Low Income Housing (LIHTC) also qualify for 45L?
Yes, the requirements for a 45L Tax Credit are specific to energy efficiency. Tax code does not currently restrict Low Income Housing from qualifying for a 45L Tax Credit.
Has My CPA already taken advantage of the 45L tax credit?
It is possible that your CPA has taken other deductions but not necessarily the 45L tax credit. The study is an engineering based approach that CPA’s typically are not qualified to perform in their day to day functions. We would be happy to discuss this further with your CPA and provide any information that your CPA may want regarding the credit.
Is there a limit on the amount of a 179D deduction I can take?
The only limitation on a section a 45L tax credit is $2,000 per dwelling unit.