It took some time, but Congress finally passed and the President signed into law the permanent extension of IRS Code Section 179D as part of the recent COVID relief bill. Owners of commercial buildings can again and permanently receive federal tax deductions for approved, successful energy upgrades. See: https://uscode.house.gov/view.xhtml?req=(title:26%20section:179D%20edition:prelim)

Section 179D first went into being in 2006, offering federal tax deductions for commercial building owners who implement upgrades of interior lighting, building envelope, and/or HVAC systems, at a rate of $1.80 per square foot (sf) for all three or $0.60 per sf for any one of these. The code lapsed at certain points and Congress was slow to reauthorize it several times, resulting in gap years during which such deductions were unavailable and general confusion about its effectiveness. In recent years, this federal tax deduction for energy upgrades was not in effect.

However, effective now the $1.80 per sf tax deduction for energy upgrades is permanent, will not need to be reauthorized, and will grow each year by the inflation rate. This tax deduction is available to owners of existing commercial buildings who upgrade the interior lighting, building envelope, or HVAC systems that reduce the building’s total energy and power cost by 50% or more in comparison to the minimum requirements set by ASHRAE 90.1-2001 (for buildings and systems placed in service before January 1, 2016) or 90.1-2007 (for such buildings and systems after that date). Energy savings must be modeled and calculated using approved software. See: https://www.energy.gov/eere/buildings/qualified-software-calculating-commercial-building-tax-deductions Federal tax deductions of up to $0.60 per sf are available to building owners which meet the criteria for any one of these three areas. And this tax deduction is retroactive to upgrades that occurred before the 179D was reauthorized.

In addition, the ASHRAE standard for which a reduction will be compared will change. A project will be compared to the ASHRAE standard that was in existence 2 years prior to the start of construction.

For more information on Section 179D and any potential tax deduction, speak to your tax professional. CCES has the experts to perform the technical elements of an energy upgrade that may be eligible for the Section 179D tax deductions. Contact us today at 914-584-6720 or at karell@CCESworld.com.