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Section 179D Tax Deduction - For Commercial Green Building

Created to encourage commercial building owners to construct or retrofit buildings for green building incentives, IRS Section 179D is often misunderstood.

The underutilized 179D deduction (also called the EPAct deduction) covers part or all of the costs to include energy-efficiency measures in one or more of the following categories:

  • Interior lighting
  • Heating, cooling, ventilation and hot water systems
  • Building envelope (or enclosure)

The 179D deduction covers green building incentives for government, commercial and industrial buildings, garage structures and four-story or higher multifamily residential buildings (including dormitories).

For commercial building owners, the section 179D deduction may be claimed for new construction or improvements placed into service between January 1, 2006, and December 31, 2016.  A 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.

The designers and contractors of government owned buildings are able to take the 179D deduction for all open tax years.  For property placed into service in previous years, the taxpayers are required to amend their returns.

With a deduction of up to $1.80 per square foot, 179D green building incentive has the potential to provide you with significant savings on current and past tax returns.

Who Qualifies For The 179D Deduction?
  • Owners of newly constructed or renovated energy-efficient commercial or multi-family properties

  • Government agencies may elect to assign tax benefits to architects, engineers, energy-services companies (ESCOs) and designers of new or retrofitted energy-efficient government building projects

What Does The 179D Deduction Require?

Section 179D requires the taxpayers 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 target of 50% savings is met, the building will qualify for $1.80/SF (capped at the costs of the capitalized improvements).

For buildings which do not meet the 50% savings, the tax provision also allows for partially qualifying systems.

  1. $0.60/SF for HVAC systems meeting 15% savings
  2. $0.60/SF for Lighting systems meeting 25% savings
  3. $0.60/SF for Building Envelope systems meeting 10% savings

Additionally, the Interim Lighting Rule allows for lighting systems to qualify for 30¢-60¢per square foot for a 25%-40% savings in Lighting Power Density (LPD) compared to ASHRAE 90.1-2001 LPD standards.

How CTI Helps You Receive The 179D Deduction

We offer a complete turnkey solution – verification, certification and documentation – to building owners and prime contractors, architects, engineers and other service providers who want to take advantage of this significant tax deduction.

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Owners of commercial properties may qualify for substantial tax savings. Try our cost segregation calculator to see if you are qualified to save significant tax dollars.

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