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In 2006, IRC Section 179D was enacted as a part of the Energy Policy Act of 2005 (EPAct) to incentivize building owners to implement energy efficient systems into their buildings. In general, the incentive was highly underused for the first several years. This was partly due to the economic collapse of 2008, but also from a lack of awareness and the nonexistence of the IRS required 3rd party verifiers. In recent years the incentive has gained much traction in the marketplace and in some cases it has become a critical tool to companies’ business models. For professionals who could benefit from this tax incentive, let’s take a deeper look.
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 and large residential buildings. Currently the tax law allows for a tax deduction of up to $1.80 per square foot. The provision specifically looks for the reduction of energy though the interior lighting, heating, cooling, and building envelope systems. Buildings which do not qualify for the full $1.80 per square foot deduction can partially qualify for $0.60 for HVAC, $0.60 for building envelope, and $0.60 for Lighting systems.
1. What are the requirements needed to qualify?
To qualify for the full $1.80 per square foot, Section 179D requires the 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 50% savings is not met, the tax provision also allows for partially qualifying systems.
• $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
In addition to the energy and power cost savings method, the tax provision allows an additional qualification method under the Interim Lighting Rule. This method allows for lighting systems to qualify for 30¢-60¢ per square foot for a 25%-40% savings in Lighting Power Density (LPD) when compared to ASHRAE 90.1-2001 LPD standards.
The IRS requires for the taxpayers to obtain and maintain a certification from a 3rd party verifier. The IRS and NREL have provided guidance for the Energy modeling standards as well as declarations required within the certification. The energy modeling which is used to determine the energy and power costs savings, must be performed with a Dept. of Energy approved software. Additionally, the IRS requires field inspections to be performed after the energy efficient property has been placed into service.
2. Who can benefit?
The 179D tax provision can apply to a commercial building of any type or size. In addition to commercial buildings, residential buildings which are 4 stories or more may also qualify. Government owned housing units are also limited to 4 stories or more. This requirement of 4 stories or more is due to the modeling standards of ASHRAE 90.1.
3. Applying 179D to Government Owned Buildings
Under the Energy Policy Act of 2005, Congress realized that because governments are non-taxable entities they would be unable to utilize the section 179D tax incentive and allowed the Governments to allocate the deduction to the Companies which were primarily responsible for the design of the energy efficient systems. It wasn’t until April of 2008 that the IRS established some guidance on the process and documentation required to establish the entitlement to the allocated deduction. A representative of the Government Building Owner must sign an “allocation letter” verifying of the cost, placed in service date, and amount of the deduction being allocated to the designers.
4. Applicable Time Frame
The 179D tax provision is currently set to expire on December 31st, 2016 which allows Commercial Building Owners to utilize the tax incentive for current year projects as well as previous projects as far back as January, 1st 2006. 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.
For designers of government owned buildings who are looking to receive an allocated deduction, the deduction may be taken in the current year and previous “open tax years” (generally 3 years from date of filing). For property placed in service during previous years, the designer is required to amend their tax returns.
Nelson Marin is the Director of Engineering for Walker Reid Strategies. For more information, please visit www.walkerreid.com.
Increasing employee productivity is one of the most critical goals in business and remains a high priority for facility managers. High-performing and innovative employees are the cornerstone of a successful company. That is why it’s important to keep employees happy and healthy! In fact, a study from the Health Enhancement Research Organization found that healthy employees are 25% more likely to have better job performance.
As the focus on productivity increases, so does the screen time of employees – averaging more than five hours a day. Negative side effects of this screen time on vision and ocular health can impede productivity. According to The Vision Council, an independent authority in the optical industry, 65% of Americans report symptoms of digital eye strain, including headaches, tiredness, and dry eye – all proven to inhibit efficiency.
Facility managers and owners can prevent these negative side effects and maximize employee efficiency by encouraging occupants to follow these tips:
You can follow the above tips in order to improve employee performance and increase overall company productivity. By doing so, you’ll ensure additional success in your business and happiness among tenants of your building.
Dr. Beatty is an optometrist and vice president of professional services at MyEyeDr., he can be reached at firstname.lastname@example.org.
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