There are many different aspects of the IRS Section 179 deduction for energy use reduction that are very important to keep in mind. The great news for most buildings built using the ASHRAE 2005 standards is that they may already qualify for full or partial deductions based on those standards.
It is also important to remember that applying for the deduction will require the use of an IRS approved and accredited professional company that use the specified software and documentation systems required by that organization. The best option is to use a licensed engineering firm that also has on staff CPAs, LEED accredited staff, commercial energy raters and professional engineers to ensure all aspects of your application are completed accurately and as required.
It is a Deduction and Not a Tax Credit
It is important to keep in mind that the IRS Section 179 deduction is a deduction, not a credit, so it is used to offset your taxable income. However, if you don’t have an income to offset for that year there are options to use past year’s income based on your financial situation.
The IRS Section 179 deduction allows a maximum of $0.60 per square foot of deductions in each of three subsystems for a total one time deduction of $1.80 per square foot.
The three subsystems that are included in the deduction including the interior lighting system, the HVAC system and the building envelope. To earn the maximum you have to achieve a 25% reduction in energy use in lighting, a 15% reduction in HVAC and a 10% reduction in energy in the building envelope.
Many Buildings Will Qualify
While the term commercial building is used throughout the IRS Section 179 deduction, there is also specific information about the types of buildings that can qualify. These include commercial buildings or buildings converted for commercial use that are put in service between 2005 and January 1, 2014.
This includes multifamily dwellings, for lease, of four or more floors as well dormitories of at least 4 stories. Buildings that are tax exempt or used for purposes other than commercial use are not eligible. For more information visit us online.