Harold asks: Where can I find a qualified entity that will perform the 179D analysis for some of my clients that it applies with me still in the loop with the client to help coordinate the process?

Answer: Hi Harold, thank you for your question. Anyone qualified to demonstrate building energy usage as a percentage improvement over ANSI/ASHRAE/IES Standard 90.1-2001 would be qualified to perform the analysis required by Section 179D. It’s essentially the same calculation required for documentation of LEED EAc1, Optimize Energy Performance and requires creation of a building energy model to compare to the ASHRAE Standard baseline building (Trane Trace 700 is what we would typically use). Almost any MEP engineering company (especially one with experience with LEED certification) would be able to perform these calculations.

Now, to explain a bit to everyone else… The Energy Policy Act of 2005 (EPAct), added new Sec. 179D to the United States Code Title 26, Internal Revenue Code. Sec. 179D, the “Commercial Building Tax Deduction” provides an immediate tax deduction for the cost of energy-efficient improvements to commercial property designed to save energy through envelope, HVAC and lighting system improvements. The Emergency Economic Stabilization Act of 2008 (HR-1424), approved and signed on October 3, 2008, extends the benefits of the Energy Policy Act of 2005 through December 31, 2013. These tax deductions are available for systems “placed in service” from January 1, 2006 through December 31, 2013.

The maximum deduction allowed is $1.80 per square foot of the building, less the aggregate of all prior-year deductions taken for the building under this provision. The property basis is then reduced by the deduction taken. Although this new deduction will primarily benefit real estate businesses, it will have some benefit to owners of commercial lease property.

There are specific requirements that must be satisfied to enable taxpayers to claim the new deduction.

1. The building must be located in the US and fall within the scope of ASHRAE Standard 90.1-2001 (Energy Standard for Buildings Except Low-Rise Residential Buildings).

2. The building must include improvement over baseline for interior lighting systems, the HVAC or hot water system, or the building envelope. And while “building envelope” isn’t defined by Sec. 179D, in Sec. 25C(c)(2) the term is defined as including the wall and roof assemblies, insulation, air/vapor barriers, windows and weather-stripping and caulking.

3. The property must be certified as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the buildings interior lighting systems and heating, cooling, ventilation and hot water systems by 50% or more in comparison to a reference building that meets the minimum requirements of Standard 90.1-2001. Note: to qualify for the full deduction, the cost reduction plan must target all the systems specifically identified in Sec. 179D(c) (1)(D). The reduction applies to overall energy savings and not the savings of any particular system.

Sec. 179D(d)(1) provides a partial allowance if a taxpayer replaces one of the systems allowed under Sec. 179D(c) (1)(C), and the replacement meets the target for that system. The partial deduction available for the cost of the systems installed is up to $0.60 per square foot of the building for each of the above referenced systems: lighting, mechanical or envelope, to total the maximum allowable deduction of $1.80 per square foot.

More information at http://www.energystar.gov/index.cfm?c=tax_credits.tx_comm_buildings

Thanks!
Sarah Gudeman, LEED AP

Share