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Deduction for Investing in Energy Efficient Equipment

Berdon Tax Team 04.14.2016 | eVisor

Internal Revenue Code Section 179D provides for a deduction for the costs of new energy efficient equipment installed in a commercial building. The recent PATH Act1 extended the effective date to include property placed in service during 2015 and 2016 and Congress is considering further extensions.  Here is how 179D works.

Section 179D is unusual in that the amount of the deduction is based upon the square footage of the building and not the cost of the improvement. The amount can range from 30 cents to $1.80 per square foot of building space. The basis of the improvements is reduced by the section 179D deduction. The remainder of the costs can be depreciated under normal rules.

Property can qualify for the deduction if a system is installed as part of a plan to significantly reduce total annual energy and power costs of a commercial building. A deduction is allowed for the costs of:

  • Interior lighting systems;
  • Heating, cooling, ventilation, and hot water systems; and
  • Improvements to the building envelope - walls, floors, roofs, doors, windows, skylights.

Before you may claim a section 179D deduction, you must receive a certification by an unrelated licensed engineer or contractor. Where the building improvements are made by a governmental entity (e.g., a public school), the section 179D deduction can be allocated to the person responsible for designing the property (e.g., an architect, engineer, or consultant).

1 Protecting Americans from Tax Hikes Act of 2015.

If you have questions, contact your Berdon advisor. Berdon LLP, New York Accountant.

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