Does Your Building Qualify For the EPAct Tax Deduction

Where are the savings? That’s the theme of the building industry in this post-pandemic era. Many raw materials have increased in price, and construction budgets for commercial and residential high-rises are skyrocketing. These savings sometimes come from the least expected places. One of them is the 179D Energy Tax Deduction aka the EPAct Tax Deduction. This allows tax savings for measures that increase energy efficiency in buildings through the HVAC system.

The EPAct Deduction applies to commercial buildings and multi-family residential buildings that are four stories or higher (above ground). Owners can expense up to $1.80 per square foot of the cost of improvements that increase energy efficiency.

A Look at the EPAct Details

Here are the details:

  • The EPAct applies to new buildings, retrofitted buildings, and additions to existing buildings.
  • The EPAct deduction encompasses three energy-saving elements of a building: 1) interior lighting, 2) the building envelope. 3) or heating, cooling, ventilation, and hot water systems that reduced the building’s power cost.
  • The EPAct deductions are available for new construction at $1.80 per square foot. See summary chart.
  • The total energy savings must reach 50% when compared against ASHRAE standards (section 90.1). This applies to buildings placed into service prior to December 31, 2020.  (The IRS has not released information on those on or after January 1, 2021, yet.)

Who Gets to Claim the EPAct Tax Deduction?

The owner of the building is the individual eligible for the deduction. This deduction does not apply to buildings or systems owned by the federal, state, or local government. In this case, however, the tax deduction applies to the entity primarily responsible for the design of the system.

Churches, NG0s, and non-profits do not qualify for the EPAct deduction, as they do not pay taxes. The exception to this is if there is an energy-as-services agreement that is owned by a tax-paying company.

The EPAct deduction was originally enacted in 2006. It was scheduled to expire in 2017 but was extended to 2020 and was later permanently extended. For owners of commercial buildings, the deductions are taken the year the building is placed in service. IRS regulations allow commercial building owners to claim the deduction on an upcoming return for previous tax years.

How to Certify

The IRS requires that entities that take the EPAct tax deduction file a detailed energy engineering report. This needs to be certified by a CPA. The report must include a physical inspection. Also, the report must be based on information from qualified software used for modeling systems and buildings. A list of approved software is on the website of the Office of Energy Efficiency and Renewable Energy.

Planning Comes First

As with any project like this, planning ahead of time is important. This allows you to incorporate all the tax-saving features on the front end so that you realize maximum savings. Contact The Severn Group today to learn more about how to realize savings through EPAct. Also, keep coming back to our blog for the latest news about HVAC management for commercial buildings and other important HVAC tips.