Section 179D: What It Is and How to Qualify

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.

September 15, 2021

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Intended to promote the design and construction of energy efficient commercial buildings, the Energy Efficient Commercial Buildings Deduction, otherwise known as 179D, is a popular tax incentive that provides eligible contractors, designers, and building owners the opportunity to claim a tax deduction of up to $1.80 per square foot for the installation of qualifying energy efficient systems and buildings.

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 projects qualify for Section 179D?

Newly constructed commercial buildings as well as energy efficient upgrades to the HVAC, interior lighting, or building envelope systems of existing buildings qualify for this deduction.

There are three main qualifying elements for the 179D Tax Deduction:

  1. Qualified activity (AEC work on government building)

Creation of technical specifications. Documented thought leadership creating or changing the HVAC, interior lighting, or building envelope systems of the government building.

  1. Allocation form (AEC work on government building)

Government is a non-tax paying entity. The allocation form passes the 179D deduction through to taxpayers that worked on the building.

  1. Technical analysis of the building (AEC and Commercial Building Owners)

3-D energy analysis to determine overall building efficiency and deduction rate (up to $1.80/s.f.).

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 government-owned buildings, the incentive can be passed through to taxpayers that qualify for the deduction, including the architect, engineer, contractor, ESCO, environmental consultant, sales engineer, or energy services provider.

What type of buildings are eligible for Section 179D?

All commercial buildings, parking garages, and multi-family residential buildings (greater than three stories above-grade), whether privately or government owned, may qualify for the deduction. The property must be located within the United States.

How do I claim the deduction?

In order to claim the deduction, a Section 179D compliance study (“a Section 179D Certification”) must be performed by a qualified independent firm or individual who then certifies the deduction.

Why ABGi?

ABGi USA provides the resources and expertise to help our clients secure the Section 179D Tax Deduction to which they are entitled. Our team of energy, finance, tax, and engineering professionals provide turnkey service that includes the modeling, inspections, certifications, and tax documents required by the IRS.

We perform a complete Section 179D study in accordance with the IRS guidelines including:

  • Obtain the Allocation Letter from the proper government official;
  • Perform the energy modeling required to calculate the deduction;
  • Provide the site inspection required to certify the deduction;
  • Substantiate and document the delivery of the certification required by the IRS; and
  • Coordinate with your tax department or independent accounting firm.

ABGi USA also provides full audit defense within its turnkey service as part of the engagement with elite 179D knowledgeable tax controversy attorneys.

Contact ABGi USA for a complimentary assessment of your planned or existing Section 179D opportunity!