Posted by Jeffrey Feingold on 01.07.20

Does your business invest in energy-efficient building systems? If you are not currently benefitting from the section 179D or section 45L tax deductions, you could be losing out on thousands of dollars of tax savings. The good news is the bill was extended by Congress through December 31, 2020 and this extension also made these tax incentives retroactive back to the year 2016.

Section 179D

Originally enacted under The Energy Policy Act of 2005, the section 179D energy tax deduction for building envelope efficiency encourages building owners to “build green” to not only save money by reducing their utility bills, but also to reduce their tax liability on their tax returns. Today, most building code requirements call for much higher energy efficiency standards, which means there is a good chance new construction projects will qualify.

Who Qualifies?

• Building owners and lessees who make or have made energy-efficient improvement to their commercial buildings
• Architects, engineers and contractors engaged in the design work of federal, state or local government-owned buildings (universities, schools, airport, jails)

Certification must be completed by a licensed professional that is an unrelated, third-party to the project. To qualify for the 179D deduction, the architect, engineer, contractor or designer, must get a letter allocating the tax benefit from the government agency that owns the building. Additionally, all 179D projects require an independent certification, which includes modeling and a site visit by a licensed engineer.

Request a free assessment to determine if you qualify for energy-efficient tax deductions.

Section 45L

Congress enacted the Protecting Americans from Tax Hikes (PATH) Act in 2015, which made research and development (R&D) tax credits permanent, the legislation also extended the New Energy Efficient Home Tax Credit under Code Section 45L through 2017. It was fabricated for the same intention as the 179D tax provision though it serves small-scale family home builders and not large commercial building contractors.

The 45L tax credit can be claimed retroactively for all residential and apartment buildings completed within the last four years, and any unused credit may be carried forward for up to 20 years.

Eligibility

Property

• To claim the 45L tax credit, the property must meet the following criteria:
• Built in the U.S. between January 1, 2006 through December 31, 2020.
• For single and multi-family dwelling units, the unit must consume a minimum 50% less energy to offer the same heating and cooling functions as any identical non-energy efficient residence
• Manufactured homes must reduce energy usage by at least 30%
• 10% of the energy efficiency must be derived from the building envelope
• Properties that undergo major rehabilitation and new construction can qualify for the 45L tax credit if they pass the energy audit and get certified as energy efficient
• To qualify for the 45L tax credit, the home must be sold, leased or rented

Individuals

• A person must own and have a basis in the qualified energy efficient home during its construction to qualify as an eligible contractor with respect to the home
• A “person” can be an individual, a trust, an estate, a partnership, an association, a company or a corporation
• In addition to single-family homes, other dwellings like apartment buildings, townhouses, student housing, condominiums and assisted living facilities are eligible for the 45L tax credit
• The qualified contractor, typically the developer, builder or homeowner – is the only person who can claim the 45L tax credit and must own the unit at the time of construction or improvement

Claiming a Section 179D or Section 45L deduction involves complex calculations and there are certain limitations. It is important that you consult with a tax advisor who has experience with 179D and 45L as they apply to architects, engineers and builders. The IRS will be updating tax filing forms and instructions in the coming weeks to reflect these tax law changes as tax season 2020 officially kicks off. Tax Point Advisors applies our national expertise to your local projects by being more hands-on and cost-effective than many of our competitors. Our team of licensed professional engineers make it easy for you and have helped hundreds of companies successfully claim 179D energy tax benefits. On top of that, our accounting experts support your application and provide professional guidance throughout the process.

Tax Point Advisors provides R&D tax credit study services and other specialty tax services to CPA firms and their clients throughout the U.S. To learn more about the 179D  or 45L tax deductions from the experts at Tax Point Advisors, contact us at (800) 260-4138, or please leave us a message below.