Some people choose to implement energy efficiency changes into their homes and buildings solely out of concern for the environment. However, there are many cost-saving benefits that when outfitting a green building.
Besides saving you money on energy expenses, green building incentives are an effective tax solution to put cash back into your pocket.
The Benefits of Green Building Tax-Savings Strategies
179D Tax Incentive And Green Buildings
The Energy Efficient Commercial Building Tax Deduction (tax incentive 179D) is known more commonly as the Energy Policy Act (EPACT). EPACT was specifically designed to offer tax deduction rewards to owners of commercial buildings who are now required to comply with more challenging energy efficiency standards.
EPACT allows you to save up to $1.80 per square foot in deductions if you have recently updated your green building with an efficient lighting plan, HVAC or building envelope. You are entitled to tax credits through the EPACT 179D tax incentive if you meet the following criteria:
- You are the owner of a commercial or multifamily property that is energy efficient and has been built or retrofitted since December 31, 2005.
- You are an architect, engineer, energy service company (ESCO) or designer of energy-efficient municipal building projects.
- Your building is LEED-certified (not a requirement, but increases your chances of qualifying).
Earning tax credits through EPACT is beneficial for businesses because the deduction provides a one-time accelerated depreciation for commercial, multifamily and public agency-owned facilities, meaning these buildings lose taxed value at an accelerated rate.
Accelerated depreciation allows you to defer corporate income taxes by reducing your taxable income in exchange for paying taxes on income in the future.
Section 179D Tax Incentive Details
With the complexities of tax rules, work with a tax expert to see how green building incentives saves your business money.
The Section 179D tax incentive calculates your deduction based on the energy efficiency of a commercial building as compared to a benchmark created in 2001 known as ASHRAE 90.1-2001. This benchmark is applicable for buildings completed before December 31, 2015. Buildings completed in 2016 or later, utilize ASHRAE 90.1-2007 as their benchmark. While the maximum deduction is $1.80 per square foot, there is also the potential for three individual subsystem deductions:
- $0.60 per square foot for HVAC
- $0.60 per square foot for interior lighting
- $0.60 per square foot for your building envelope
If your new or retrofitted green building achieves a 50 percent reduction in total annual energy and power costs through these three subsystems, the total federal tax deduction available to you is $1.80 per square foot.
Businesses that achieve energy reductions qualify to save a significant amount of money through green building incentive tax credits. While the opportunity for deductions is clear, specific tax rules and paperwork make the task of submitting for credits seem daunting to many business owners.
Speaking with an experienced tax expert about tax incentives available to your business may be the best option for companies seeking to earn tax credits and save money through green building initiatives.
Ready to learn more about tax incentives available in your area? Find your state on the map below.