Tax Breaks for Energy Efficient Businesses

taxesAs a business owner, you’re no doubt always looking for ways to save money. One often overlooked, but incredibly useful tool for earning back money is the 179D, a tax deduction for business owners, architects, and engineers, and contractors of energy efficient buildings.

Even though most modern office buildings already meet the energy efficiency standards detailed in the 179D, the tax benefits often go unclaimed. I recently had the opportunity to sit down with Curtis Buck of Buck & Associates, an energy auditing and consulting firm, and learn more about the 179D. Here are some of his tips to help put thousands of dollars back into your business’s pocket.

What You Need to Know about the 179D

You can earn up to a maximum of $1.80 per square foot of your establishment, and you don’t have to have solar panels or a windmill powering your building. In fact, your building simply needs to surpass the 2001 ASHRAE standards, which most states require anyway. Most newer buildings already qualify for at least a partial tax deduction through the 179D.

There are three subsystems that qualify for a tax deduction through the 179D: the building envelope, the HVAC, and the lighting system. Each system can be deducted for up to 60 cents a square foot. It’s common for one subsystem to qualify for the deduction and not another, so make sure you thoroughly look over every system.

Here are the energy efficiency rates your subsystems need to be operating at in order to qualify for a tax break: lighting systems need to be 25% efficient, HVAC 15% efficient, and the building envelope 10% efficient. It’s worth noting that the building envelope is usually the most difficult to update.

Who Qualifies?

If you’re a designer of a public building (meaning an engineer, architect, or construction manager), you can only claim tax benefits on the system you worked on. You can also only claim any building you worked on within the past three years. Since the EPAct wasn’t renewed in 2014, designers of public buildings will only be able to claim the 179D for the next few years.

Private business owners, on the other hand, can claim any one of the three subsystems or the entire building. They can also claim the deduction for every year back to 2006, when the EPAct became active. This means that even though the EPAct wasn’t renewed this year, private business owners can claim the benefit for the years 2006-2013 (and most likely 2014), indefinitely.

What Do You Need to do?

If you’re a private business owner, update the subsystems in your building that don’t already meet the 2001 ASHRAE standards. Like I mentioned before, the building envelope (the walls and roofing) will be the most difficult to update, but lighting and HVAC are fairly easy fixes. Next, you’ll need to hire an energy auditing firm to energy model your building and ensure it actually adheres to the appropriate standards. This process usually takes anywhere from 30-90 days, depending on how detailed your building plans are.

Once the auditor is finished, he or she will simply give you the numbers you need to fill out the tax form. Remember, you can go back and amend all your taxes to the year 2006. Keep in mind that this exemption is based off the depreciation of your building over the past 39 years, and that you must also multiply by your tax rate. Still, if done properly, you could get back thousands (and sometimes hundreds of thousands) in refunds.

One Last Tip

If you’re thinking of updating your building, Curtis has one more tip to keep in mind. He told me it’s usually more money than it’s worth to renovate a building less than 100,000 square feet. Anything less than that and the cost of updating your building and hiring an auditing agency usually outweighs what you get back in taxes. However, you should also keep in mind the money you’ll save in the future with an energy-efficient building. It might be worth it to update your building anyway.

Updating your building does require some planning and effort, as well as significant time. But all the effort can easily put a good chunk of money back into your thriving business. Worth the effort, I would say.

Mary Kremer is a freelance writer who loves traveling, learning, and honing her business skills. In her free time she enjoys hiking and bugging her husband as he’s about to fall asleep. She’s written content for for a few years, and enjoys working with good people doing good business. Image courtesy reynermedia

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