What is EPAct 179D?
The Energy Policy Act of 2005 enacted a unique energy tax deduction known as EPAct 179D, as a reward for commercial building owners and designers of energy efficient facilities, for taking the initiative to build for a healthier and a more environmentally friendly future by reducing energy and total power costs of buildings. The deduction can be up to $1.80 per square foot, depending on the reduction in energy usage compared to the ASHRAE 90.1-2001 standard. The deduction can be taken by commercial building owners, designers and even tenants. This tax deduction applies to new construction or any building that has been modified after January 1, 2006 to qualify as an energy efficient building.
How much is the deduction?
The maximum tax deduction allowable by the EPAct 179D is currently $1.80. The specific amount of the deduction allowed will be determined on the energy savings of the building compared to the ASHRAE standard 90.1-2001. The tax payer will qualify for the full deduction if the building’s entire energy usage is 50% less than the ASHRAE 90.1-2001 standard. However, even if the entire building does not qualify as 50% more energy efficient, the IRS allows for each of the 3 primary categories of energy use to be looked at individually. These categories are building envelope, lighting and HVAC systems. Each of these 3 systems can qualify for up to a $.60 per square foot tax deduction.
Who can take the deduction?
Designers – In 2008 (IRS Notice 2008-40) , a provision to the IRS code was put in place stating that the primary designer of a building that qualifies for the EPAct 179D deduction is eligible to claim the deduction on their taxes. Primary designers include but are not limited to engineers, architects and contractors. The most common types of facilities in which the designer will quailify would be government and public building projects such as schools, government buildings, city and state buildings and military buildings. It is very important to point out that in order for a designer to receive the deduction, a letter of allocation must be signed by both the owner of the building and the designer, and included in the report. Commercial Building Owners – The commercial building owner, or ownership entity, may solely capture the EPAct 179D energy tax deduction should the building qualify as 50% more energy efficient than the ASHRAE 90.1-2001 baseline standard. Common types of properties that are corporate owned include but are not limited to: Apartment, Car Dealerships, Hotels and Motels, Parking Garages, Restaurants, Retail Centers, Supermarkets, Warehouses and Distribution Centers. Tenants – If the tenant is responsible for installation costs associated with enabling the building to qualify as an energy effient building, the tenant will be allowed to capture the deduction so long as the expenses and retrofits were initiated after January 1, 2006. ESCO’s (Energy Service Companies) – ESCO’s may also claim the deduction for their work in design of energy efficient systems installed on govenrment owned facilities.
How to qualify?
In order to qualify for the EPAct 179D energy tax deduction, the IRS mandates that a report and model be completed attesting to the justification the quantification of the results of the building’s energy study. IRS Notice 2006-52 states that the certification of the qualified systems that meet 179D requirements, must be supplied by an engineer or contractor that is properly licensed as a professional engineer or contractor in the building’s location jurisdiction and that only qualified computer software is permissible to calculate and document the improved energy performance. Here at Blue Ray Engineering, we have in house staffed Professional Engineers that construct, sign and seal each 179D energy study. In addition, we use the latest and most accurate industry and IRS regulated modeling software.
Basics of the 3 systems (Envelope, Lighting and HVAC)
Building Envelope – The building envelope is considered to include every item on the building’s perimeter that touches the outside world, including the roof, walls, insulation, doors, windows and foundations. Since the building envelope does not actually “use” energy, the tax deduction requires the envelope to reduce the energy used by existing lighting and HVAC systems. HVAC – Regarding HVAC, by far the largest energy using system in commercial buildings, there are currently several categories of projects that generate the 179D tax deductions: 1. Highly efficient right-sized systems: these are central HVAC systems where the air handling units (AHUs) or chillers are high efficiency units, often using variable frequency drives (VFDs) to minimize energy use on major motors. 2. Decentralized, well controlled systems: these use smaller systems to handle normal day-to-day energy use instead of having one large central system. Occupancy sensors are used to turn off and on components only as needed, because the best possible energy savings stems from turning off units when they are not needed. 3. Demand control ventilation: these use human occupancy (CO2) sensors to control the amount of outside air required in specific spaces and automatically adjust system dampers accordingly. 4. Thermal storage, geothermal heat pumps and heat recovery systems: these are more complex systems that take advantage of off-peak energy usage hours, groundwater resources, and/or waste heat recapture to achieve increased energy performance. Lighting – lighting replacement projects are generally straight forward and federal mandates prohibiting further manufacture or import of metal halide or T-12 fluorescent lighting fixtures forced the use of qualifying energy efficient lighting products, such as :
At Blue Ray Engineering, our goal is to make the process for claiming the deduction as easy as possible for our clients and partners. Our process is a simple 5 step roadway to receiving this very attractive tax benefit. Our typical turnaround time to complete an energy tax deduction study is 3-4 weeks from the time we conduct the physical site inspection.
Step 1: Consultation – One of our experienced engineering tax consultants will discuss with you the basics to make sure that an energy tax deduction is right for you. At this point, we will gather some information about the building. We will also have you email or upload the buildings “as built” and systems drawings to us so that we can make an accurate determination and recommendation.
Step 2: Proposal and Feasibility – Within 24 hours of receiving the buildings drawings, you can be sure that you will receive a FREE feasibility study from us. This study will simply layout to you our expectations of the outcome of the energy study, should you proceed to have the energy study completed. We itemize this report in an easy to read format, projecting which of the 3 systems will qualify, if not all 3. Our feasibility study lets you know if the building will qualify or not prior to actually engaging in the project and paying any fees.
Step 3: Engagement Letter – If our feasibily study results show that your building will qualify for the EPAct 179D enegy tax deduction, we will ask you to sign and return our BRE engagement letter, allowing us to begin the process for the energy study.
Step 4: Constructing the Report – Once we have received the signed engagement letter, we will set up a physical site inspection with the point of contact person. We will begin the costruction and modeling of the report immediately after the site visit has been completed.
Step 5: Delivery – Once the report and model has been completed you will receive your 179D energy tax deduction study, signed and sealed by one of our licensed professional engineers. Delivery of the drafted report will be electronically transmitted upon completion. Once you have had a chance to review and make any changes you deem necessary, we will submit the final copy.
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