IRS to Buildings Owners: “We’re From the Government and We’re Here to Help”

August 30, 2016 By Carl Weinschenk

irsOrganizations should take a long and serious look at the tax code. That’s usually not fun, but in this case there is some very good news for those considering energy improvements and upgrades.

Internal Revenue Code Section 179D initially was part of the Energy Policy Act of 2005. It allows deductions for energy efficiency projects. Walker Reid Strategies Director of Engineering Nelson Marin, in as post at Buildings.com, said Section 179D is a tax incentive structure for commercial and large residential buildings. It currently allows a deduction of as much as $1.80 per square foot for energy projects that focus on interior lighting, heating, cooling and the building envelope. Partial deductions of $.60 per square foot are available.

Marin wrote that use of Section 179D was slow to take off due to the collapse of the building market in 2008. It also was hobbled by the lack of third party verifiers that are required by the IRS to certify improvements. The Buildings.com piece makes it clear that owners should get busy: The tax provision currently is set to expire on the last day of the year.

The benefits of Section 179D almost ended. The section of the tax code had a near-death experience at the end of last year. At that point, Congress and the President actually agreed on something. It passed — and he signed — the Protecting Americans from Tax Hikes (PATH) Act. It was, according to alliantgroup, a CPA firm, a broad and bipartisan tax bill that extended and in some cases made permanent more than 50 tax code provisions that were on the point of expiration. These included Section 179D.

The alliantgroup says that to qualify buildings put into service before this year must meet ASHRAE 2007 standards. Perhaps most importantly, the piece says that cost reductions “of as little as 10%, in some cases, can result in very substantial tax savings.” Retail buildings, office buildings, industrial buildings, warehouses and apartments of four stories or more can qualify. A wide array of government-owned buildings – schools, state universities, airports, military bases and others – can also take advantage.

Moss Adams, a CPA firm, posted a look at how tax laws and rules in PATH can help building owners. It is not clear if everything covered in the piece specifically relates to energy efficiency improvements. However, whether a project explicitly includes energy efficiency or not, it follows that any improvement can be made with energy efficiency in mind.

The part of the commentary that focuses on Section 179D says that eligible parties are owners and tenants of commercial properties responsible for improvements and architects and engineers who are the “primary designers on government-owned energy efficient buildings.”

The method of proving whether building achieved the claimed energy efficiency improvements varies by state. Moss Adams clarifies alliant group’s reference to ASHRAE: A licensed contractor or professional engineer, the piece says, must model performance against a reference building established by ASHRAE.

Energy managers are engineers and technically trained people. For most, the intricacies of the tax code are something that in which they have no ability or interest. However, the IRS – at least under the current administration – has a real interest in pushing for energy efficiency. The potential of a $1.80 per square foot deduction is enough that energy managers should pay attention themselves or, at the least, bring the possibility to the attention of the boss.

One comment on “IRS to Buildings Owners: “We’re From the Government and We’re Here to Help”

  1. Carl Weinschenk,

    Have you done the math on a building of 50,000 sf or less, from start to finish? Have you reviewed the cost of certifying a project?

    I’d like to see your review after all the required costs are included.

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