It’s been gone since 2017 but the good news is that the 179D Deduction is back! The tax extenders bill passed in December 2019 with this popular Energy Efficient Commercial Buildings Deduction. This had become a viable tax savings strategy again for many taxpayers. The tax deduction is up to $1.80 per square feet of qualifying space. This now brings back the incentive to invest in energy-efficient improvements to the HVAC, lighting and building envelope systems. We can now take 179D for tax years 2018, 2019 and 2020.
If you own commercial buildings or residential buildings, the deduction reduces the depreciable basis of the asset and can be claimed retroactively by filing Form 3115 with the current year tax return. For practical purposes, if a taxpayer builds or renovates a facility in excess of 30,000 square feet, it makes sense to explore this benefit.
Architecture and engineering firms that design government-owned buildings have benefited greatly from 179D. Since government-owned buildings are tax-exempt, they are allowed to allocate the deduction to the party responsible for the design of the energy-efficient improvements. However, you must secure an allocation letter from the governmental entity outlining the transfer of the deduction. The benefit is more advantageous to design firms because they do not have a depreciable basis in the property and it becomes a permanent tax savings. The deduction can be claimed retroactively; however, the taxpayer must amend the tax return to do so. For more info on this, contact Tom Hofstad at firstname.lastname@example.org