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As a property management company committed to helping our clients achieve the best returns on their real estate investments, Coastline Equity is excited to share valuable information about the IRA Section 179D tax deduction for energy-efficient commercial buildings. This tax deduction can significantly benefit commercial property owners and tenants, and we are here to help you navigate this opportunity.
Coastline Equity is dedicated to keeping our clients informed about the latest developments in the real estate industry, particularly those that have significant implications for commercial property owners and investors. In this blog post, we will discuss the Inflation Reduction Act (IRA) of 2022, which represents the largest federal investment ever to fight climate change. The IRA, passed as part of the $1.7 trillion budget reconciliation, includes $369 billion in new programs and expanded tax incentives to promote energy efficiency and reduce carbon emissions in the building sector.
What is the IRA Section 179D Tax Deduction?
The 179D commercial buildings energy efficiency tax deduction primarily enables building owners to claim a tax deduction for installing qualifying energy-efficient systems in commercial buildings. Tenants may also be eligible if they make construction expenditures.
The 179D tax deduction was introduced on January 1, 2006, and was made permanent under the Consolidated Appropriations Act of 2021, signed into law on December 27, 2020.
Qualifying for the Tax Deduction:
To qualify for the tax deduction, new or existing buildings must have installed (1) interior lighting; (2) a building envelope; or (3) heating, cooling, ventilation, or hot water systems that reduce the energy and power cost by 50% or more compared to a building meeting minimum requirements set by ASHRAE Standard 90.1. Cost savings must be calculated using qualified computer software.
The summary of 179D tax deductions for properties placed into service on or before December 31, 2020, is as follows:
Fully Qualifying Property - 50% savings requirement - Tax Deduction: $1.80/ft² (taxable years before 2021), $1.82/ft² (taxable year beginning 2021), $1.88/ft² (taxable year beginning 2022)
Partially Qualifying Property - Envelope (10% savings), HVAC and HW (15% savings), Lighting (25% savings), and Interim Lighting Rule (25%–40% lower lighting power density or 50% for warehouses) - Tax Deduction: $0.60/ft² (taxable years before 2021), $0.61/ft² (taxable year beginning 2021), $0.63/ft² (taxable year beginning 2022)
Calculating the Tax Deduction:
To calculate the tax deduction for properties placed into service on or before December 31, 2020, you can use the qualified software provided by the Department of Energy (DOE). For additional resources and guidelines, refer to the publications provided by NREL, IRS Internal Revenue Bulletin 2021-48, IRS Notice 2012-26, IRS Notice 2008-40, and IRS Notice 2006-52.
Note that updates to the qualified software and technical references for properties placed into service on or after January 1, 2021, will be made available upon the anticipated IRS Notice release.
How Coastline Equity Can Help:
At Coastline Equity, we understand the complexities of commercial property management and tax deductions. Our team of experts is ready to guide you through the process of leveraging the IRA Section 179D tax deduction for your commercial properties, ensuring you maximize the benefits.
Do not hesitate to reach out to Coastline Equity for further assistance or questions regarding the
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