EPAct-created Section 179D Federal Tax Deductions Are Set To Expire In December

By Charles R. Goulding and Jennifer Pariante  
OTHER PARTS OF THIS ARTICLEPt. 1: This PagePt. 2: Tweaked Section 179D, New Section 179F Would Offer Improved Tax Deductions For Energy EfficiencyPt. 3: Complete Fluorescent Lighting Upgrades Before End Of 2013 To Maximize Section 179D Tax DeductionsPt. 4: Update: Alternative Energy Tax Credits And Capturing Missed EPAct Tax Deductions

With the passage of the Energy Policy Act of 2005, tax planning became an important consideration for a broad range of upgrades designed to improve energy efficiency. EPAct created Section 179D of the Internal Revenue Code, which provides federal tax deductions as incentives to make buildings more energy efficient. In 2013, energy efficiency tax planning has a special urgency. That's because the current Section 179D tax provisions are scheduled to expire on Dec. 31, 2013. A proposal to extend EPAct for three years, through Dec. 31, 2016, and to expand the beneficiary categories, has been introduced in the Senate. That proposal includes a new Section 179F, with a provision for a $4 per square foot tax deduction for so-called "deep retrofits."

Also on the subject of energy and taxes, the 30 percent wind tax credit has been extended for projects commencing in 2013. Most other alternative energy tax credits are scheduled to expire Dec. 31, 2016.

Given all this, it's worthwhile for facility managers to consider tax planning steps to maximize the current 179D EPAct provisions. There are also some no cost ways to plan for the potential extension of 179D deductions and the expansion of energy-related tax benefits. Finally, facility managers should be aware that the IRS has made it easy to recoup any missed tax incentives back to Jan. 1, 2006, and they should understand the process for doing that.

The Section 179D tax incentive provides for a $1.80 per square foot EPAct tax incentive for achieving a 50 percent overall energy cost reduction as compared to a building built to ASHRAE 90.1-2001. For projects that don't achieve the full 50 percent energy cost reduction, there are tax deductions of up to 60 cents per square foot for lighting, HVAC, or the building envelope. Lighting has a special user-friendly prescriptive tax incentive starting at 30 cents per square foot for achieving at least a 25 percent watts per square foot reduction compared to ASHRAE 90.1-2001. The current lighting prescriptive method is based on pure wattage reduction without any benefits (power allowances) for lighting controls such as dimming, occupancy sensors or daylighting.

Proposed Section 179F Tax Deduction Per Square Foot

% ImprovementDesign2 yr M&VTotal

Senate Proposal To Extend, Expand EPAct

Section 179D Extended

  • Deductions increased to maximum of $3 per square foot
  • Standard raised from ASHRAE 90.1 2001 to 90.1 2004, then to 90.1 2007
  • Deductions now assignable by REITs and non-profits
  • Expanded universe of certifiers
  • Power allowances for controls
  • 2016 expiration

Section 179F for Deep Retrofits Created

  • Up to $4 per square foot deduction with Certified Retrofit Plan
  • Benefits come in two parts: 60 percent on project completion and 40 percent after two years based on measurement and verification
  • Building must be at least 10 years old
  • Measurement and verification required to avoid recapture
  • 2016 expiration

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  posted on 6/21/2013   Article Use Policy

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