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Are tax breaks available for energy-efficient construction?

December 10, 2012

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With the emphasis on green construction and technologies, more owners and investors are considering adding energy-efficient components into new construction, as well as retrofitting existing buildings with energy-efficient improvements. A big incentive is the potential tax benefits under Internal Revenue Code Section 179D.

However, these benefits aren’t, as of this writing, scheduled to be available after Dec. 31, 2013. So you may want to make qualifying improvements before then to ensure you can take advantage of the break. And if you made such improvements in 2012, consider the break when filing your 2012 tax return.

Sec. 179D to the rescue

Under Sec. 179D, you can take an immediate tax deduction of up to $1.80 per square foot for certain energy-efficient improvements. Without the break, you’d generally need to depreciate these costs over 39 years.

The deduction is available for energy-efficient commercial building property put in service through 2013 and installed as part of the interior lighting systems; the heating, cooling, ventilation and hot water systems; or the building envelope. The full deduction of $1.80 per square foot is available if the components reduce the building’s total annual energy and power costs by 50% or more compared with a reference building.

A partial deduction

If the 50% threshold isn’t met, a partial deduction of $0.60 per square foot for each qualifying component may be available. Certain minimum energy savings percentages must be satisfied:

The sum of all partial Sec. 179D deductions can’t exceed the excess, if any, of $1.80 multiplied by the building’s square footage over the aggregate amount of the Sec. 179D deductions allowed for the building for all prior taxable years. For example, say your building’s square footage is 120,000 and in previous years you’ve taken $100,000 in Sec. 179D deductions for the building. Then your 2013 Sec. 179D partial deductions for the building can’t exceed $116,000 [($1.80 × 120,000) – $100,000].

Staying on top of it

The Sec. 179D deduction was already extended beyond its original deadline and could be extended again. Your tax advisor can help you stay on top of any additional extension and other tax incentives (such as those for solar energy) that could help you improve your bottom line with energy-efficient construction.

For more information contact Brian Lawrence at [email protected]

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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