§179D of the Energy Policy Act of 2005 provides energy tax deductions for investments in “energy efficient commercial buildings” that are designed to increase the efficiency of energy-consuming functions. For government owned buildings, the person(s) primarily responsible for designing the building or project may be able to claim these deductions. The Primary Designer may qualify for deductions of $.60 per square foot for energy efficient lighting design. $.60 per square foot for HVAC and $.60 per square foot for building envelope, creating a potential deduction of $1.80 per square foot that may be directly taken by the designer. This is described in IRS Notice 2006-52 and amplified by IRS Notice 2008-40. Further clarification is given in IRS Notice 2012-22.
Any of those who participated in the design may derive the benefit for the “pass-through” of the incentive/deduction. It was the intent of Congress that public entities design and retrofit to the standard of ASHRAE Standard 90.1-2001. Because this Standard mandates specific and particular attention to efficiencies, Congress elected to provide a tax-deduction “Allocation Pass-Through” to the primary designer(s).
With the help of a tax advisor, the Primary Designer may look at going back to “open” tax years (three years from date of filing to amend a tax return), which may result in an IRS refund for overpayment of taxes with interest. A thorough analysis of each taxpayer’s scenario by an advisor experienced in §179D is advantageous for determining the best approach and claiming the maximum deduction allowed under the law.
It is urgent for primary designers to evaluate open tax years, as the §179D Tax Deductions will become unavailable once the open year closes. Primary designers MUST file an amended return to claim the deduction for open years and may not file Form 3115 “Change of Accounting” form to claim the deductions per new ruling by the IRS.
Information provided by Capital Review Group, a multi-disciplined energy and incentives solutions leader that stays current on green-energy tax incentives, IRS compliance regulations, and energy strategies including renewables.