As part of the passed Consolidated Appropriations Act of 2021 bill (The “Act”), there could be a tremendous benefit for taxpayers who incur costs associated with energy efficient systems. These apply to newly constructed commercial real estate or significant renovations, which improve the energy systems to existing assets. Since its inception, IRC 179D Energy Efficient Building Deduction has been a temporary provision of the tax code. The Act makes this tax benefit permanent.
IRC 179D provides a deduction of up to $1.80 per square foot for energy efficient commercial building property, once placed in service. This deduction will increase annually, starting in 2021 to account for inflation.
In addition, the energy efficiency criteria have become a more stringent version of the ASHRAE Standard 90.1. Previously, energy cost savings were determined utilizing a reference building under ASHRAE Standard 90.1-2007. With the new law, taxpayers will utilize the ASHRAE standard in effect two years prior to the date of construction.
Government entities can allocate their benefits to a qualified designer, such as a design build contractor, architect or engineer of the energy efficient system.
Taxpayers can go back to 2006, the initial year of 179D eligibility, to claim missed benefits. In many situations, you also will not need to amend your tax return and will file a Form 3115 to claim missed deductions.
Click here for more information on 179D.
Details on 45L
Residential property three stories or less above grade are eligible for a $2,000 per unit tax credit under IRC 45L. Eligible dwelling units that are newly constructed, or have incurred substantial renovations, must first be leased or sold by the end of 2021 to be qualify. This provision has been extended from the previous 2020 date. The energy criteria to measure eligibility has remained unchanged.
The credit amount must be supported by a qualified third party energy analysis. And its important to note that taxpayers could amend tax returns in order to claim these tax credits.
Click here for more information on 45L.
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