Section 179D, the federal energy efficient tax deduction, has no doubt had a significant effect on the real estate and construction industries recently. In the 2012 edition of our survey of the Northeast Ohio real estate and construction industries (full results to be released soon), we asked, “Have you implemented any sustainable building practices over the last 12 months?” The two most common responses to the question were “HVAC” and “lighting,” with 78% of respondents choosing each. This is not a surprise as both of these sustainable building practices can result in an energy tax deduction through Section 179D.
According to section 179D, a taxpayer who builds or renovates a building could be entitled to speed up the depreciation for certain items that are part of that construction. This accelerated depreciation would be allowed for the costs of certain parts of the new building (HVAC, lighting, building envelope) that meet energy efficiency standards. The maximum deduction allowed is $1.80 per square foot, for a 50% reduction in total annual energy and power costs. If the full 50% reduction in total annual energy and power costs is not met, a partial deduction is also allowed for meeting individual energy savings percentages.
These savings percentages have changed over time, most recently as of March 12. The deduction is limited to the lesser of the costs of the items installed, according to a formula that allows $0.60 per each of three improvement areas (HVAC/Lighting/Building Envelope, for a total of $1.80, multiplied by the square footage of the new construction or area renovated. Buildings that qualify include commercial buildings of any size, apartments (four or more stories, for lease) and commercial energy renovations.
Click here to read more about how the federal energy tax deduction could be affecting you.
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