The Beneficial Deduction for Energy Efficient Buildings

For quite a few years the IRS gave an energy efficiency tax deduction known as the Section 179D tax deduction. This deduction applies to newly built commercial buildings that adhere to energy efficient codes, as well as rehabilitated buildings that upgrade to meet those codes. When the IRS Section 179 Deduction 2012 was released it reflected changes that modify deductible percentages, giving businesses a better chance to meet energy efficiency standards.

Powerful Provisions for Businesses

This powerful provision allows a building to utilize a first year deduction for portions of the establishment that would otherwise take thirty-nine years to depreciate. The IRS guidance was liberalized so more taxpayers can take advantage of tax benefits to better manage their money. This type of change is more typically used by designers of government buildings and architects since a federal, state or local government cannot use this deduction.

Tax Deduction Details

In order to benefit of Section 179D tax deduction there are certain energy-efficient changes that can be made to remodel commercial buildings, and construction of new buildings can incorporate them during the creation stages. Energy efficiency starts with a good heating and cooling system that is properly installed, good ventilation and an HVAC system. There are also ways to further increase energy efficiency such as making sure the building envelope, i.e. doors, windows and insulation, meet updated standards. In order for all of these components to earn a tax deduction they must be tested then certified to prove they provide energy savings. If they meet with a standard rating of 50% of energy savings, the maximum amount for a deduction is allowed. Meeting this standard is easier today with improved technology for energy efficiency. With IRS changes to provide alternative percentages for energy efficiency, some thresholds have changed to show different approval rates.

Changing IRS Percentages as of 2012

  • Interior Lighting – 25%
  • HVAC Systems – 15%
  • Building Envelope – 10%

Liberal IRS Changes

These changes took effect for buildings that were actively in service as of March 11, 2012 and remained in place through 2013. With two percentages available for use, more buildings can qualify for the deduction that pertains to the first year. This is great news for projects that are just being created since they will be able to incorporate energy efficient changes of tax deduction value.

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