The §179D Energy Efficient Commercial Building Deduction (§179D Deduction) and the §45L Energy Efficient Home Credit (§45L Credit) are two valuable tax incentives that encourage energy efficient design in both commercial and residential construction. These incentives are set to expire at the end of 2020. However the Extender Coalition, which is a group of organizations representing representing diverse business, energy, transportation, community development and agriculture stakeholders that employ millions of workers, seeks to extend them.

BACKGROUND

The §179D Deduction is a Federal tax incentive promoting energy efficient buildings for both new and existing structures. Further, architects, engineers, contractors, environmental consultants or energy services providers may also be eligible for the incentive on public projects. This incentive is often referred to as the EPAct Deduction after the Energy Policy Act of 2005 that created it, or as the §179D Deduction, which relates to its tax code section. Commercial building owners can take a Federal tax deduction of up to $1.80 per square foot of the building’s floor area if they install certain property (e.g., efficient lights or HVAC systems, added wall or roof insulation, etc.) that reduces energy and power costs. The §179D Deduction applies to both new construction and renovations completed between 2006 through 2020.

The §45L Credit allows eligible developers to claim a $2,000 tax credit for each newly constructed or substantially reconstructed qualifying residence. It applies to single family homes, apartments, condominiums, assisted living homes, student housing, and other types of residences. The residences must not be more than three stories above grade in height. Like the §179D Deduction, this incentive is set to expire in 2020.

LATEST EFFORTS

In a letter to Speaker Pelosi, Republican Leader McCarthy, Majority Leader McConnell, Democratic Leader Schumer, Chairman Neal, Ranking Member Brady, Chairman Grassley and Ranking Member Wyden, the Extender Coalition seeks to gain support for passing legislation to extended these tax provisions. The letter explains that “[p]revious lapses of these temporary tax provisions have caused confusion and hardship for the many industry sectors and individuals that utilize these tax incentives. Allowing these tax extenders to lapse at the end of 2020 would undermine their effectiveness, threaten thousands of jobs in the U.S. economy and cause needless uncertainty for taxpayers at a time when many are coping with severe economic hardship. These measures have a direct impact on hiring, job retention, and business investment and their extension would have a positive impact on an economy in serious need of recovery.” The full text of the letter is below.

HOW WE CAN HELP

Taxpayers with construction projects completed prior to December 31, 2020 may benefit under current tax law. Out of all the buildings and homes that qualify for these incentives, very few taxpayers are taking the steps necessary to claim them. ICS can provide a free analysis to determine if these incentives are feasible, and if so, provide the necessary third-party certifications and other assistance to benefit from it. For a free consultation, please contact an ICS Tax representative.

Author: Alexander Bagne, JD, CPA, MBA, CCSP

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ICS Tax, LLC (ICS) is a consulting firm providing innovative tax planning strategies. ICS collaborates with taxpayers and their tax professionals to identify credits and incentives that reduce tax liabilities and increase profitability. ICS provides nationwide service through its offices throughout the country.