§179D DEDUCTION TEXAS
The Energy Policy Act of 2005 created the §179D Energy Efficient Commercial Building Deduction as a tax incentive to encourage energy efficient design. It applies to both newly constructed and renovated buildings targeting HVAC and lighting systems as well as the building envelope. The §179D Deduction is available to commercial building owners as well as engineers, architects, and other designers of buildings owned by government agencies and other tax-exempt entities in Texas. » Learn about the §179D Deduction for 2022 and prior.
§179D BENEFITS AND REQUIREMENTS
For buildings placed in service in 2023 and thereafter, the maximum §179D Deduction is up to $5.00 per square foot.
- When constructed with prevailing wage and apprenticeship requirements, the §179D Deduction starts at $2.50 per square foot when compared to the ASHRAE Reference Standard 90.1 that was in effect for four years prior to the in-service date of the building. Each additional percentage of energy reduction will increase the deduction by $.10, up to $5.00 per square foot.
- If prevailing wage requirements are not met, the §179D Deduction is $.50 per square foot. Each additional percentage of energy reduction will increase the deduction by $0.02 per square foot, up to $1.00 per square foot.
Prevailing Wage Requirements to Maximize the §179D Deduction for 2023 Projects and Onward
- Projects started prior to January 30, 2023, do not need to meet prevailing wage rates to qualify for the $2.50 to $5.00 higher tier of §179D Deductions.
- Any construction or installation started on or after January 30, 2023, must meet prevailing wage rates to qualify for the $2.50 to $5.00 tier of deductions.
The §179D Deduction can be taken every three tax years when the building is placed in service in 2023 and thereafter (four in some situations).
- Example: If a taxpayer constructed a building in 2008 and took a deduction of $1.80 per square foot, prior rules prevented taking additional §179D Deductions for any subsequent energy efficiency improvements. Beginning in 2023, the Inflation Reduction Act allows for additional §179D Deductions for subsequent energy improvements.
Architects, engineers, and other designers in Texas can benefit for design work on tax-exempt organizations. For buildings placed in service in 2023 and thereafter, the deduction allocation can be obtained from public agencies, §501(c) organizations, and other tax-exempt entities.
» §179D Expansion Includes All Tax-Exempt Entities
» Inflation Reduction Act Expands §179D
§179D DEDUCTION FOR 2022 AND PRIOR
For buildings placed in service from 2006 through 2022, the §179D Deduction allows building owners to claim up to $1.80 per square foot. In the case of a taxable year beginning after 2020, the $1.80 per square foot will be adjusted by inflation ($1.82 for 2021 and $1.88 for 2022).
To qualify, newly constructed or renovated buildings must meet or exceed the ASHRAE standards for HVAC, building envelope and interior lighting. The §179D Deduction is available to commercial building owners as well as engineers, architects, and design contractors of government owned buildings. The building can be newly constructed or retrofitted with system improvements. Parking garages and residential buildings with four or more stories may also be eligible.
- For commercial building owners, the project must be completed on or after 2006 through 2022.
- For designers of government owned buildings, the deduction can go back to any open tax year (generally three years). The building must be a government project, including:
- K-12 Schools, higher education, and libraries.
- Municipal buildings (police, fire stations, courthouses, and more).
- Public offices, and parking garages, airport terminals.
HELPING TEXAS WITH §179D DEDUCTIONS
ICS Tax can perform the energy modeling and site visits to determine the amount of the §179D Deduction. Our service also includes coordinating with tax preparers, seeking assignments of the §179D Deduction from government and other tax-exempt agencies if required, filing a change in accounting method when necessary, and providing complimentary audit support.
