How EPAct Building Tax Incentives Support Retrofits

Now completing their seventh year, Energy Policy Act (EPAct) deductions are used increasingly by retrofitters in the commercial building sector and by designers of government building energy-efficiency measures. We’ll explain why EPAct tax benefits are steadily becoming more popular and where most of the tax incentives are utilized.

Section 179D Tax Definitions

Pursuant to EPAct Section 179D, buildings making qualifying energy-reducing investments in their new or existing locations can obtain immediate tax deductions of up to $1.80 per square foot.

If the project doesn’t qualify on a “whole building” basis for the maximum $1.80 per square foot immediate tax deduction, there are tax deductions of up to 60 cents per square foot for each of the three major building subsystems: lighting, HVAC and envelope. The building envelope is every item on the building’s exterior perimeter that touches the outside world, including roof, walls, insulation, doors, windows and foundation.

The following chart illustrates the magnitude of tax benefits available at different square footage breakpoints:

Commercial Buildings

In the commercial sector, EPAct is now being utilized by virtually all major building categories, including warehouses, industrial, retail, hotels, car dealerships and restaurant chains. Because the tax incentive is based on square footage, the biggest beneficiaries are large buildings and/or property owners with multiple buildings.

In the commercial sector, the building categories that most frequently qualify for the full $1.80 incentives are warehouses, industrial buildings and hotels. In the past year LED lighting retrofits have become a very popular category. (Our firm has published articles about each of these categories. The articles are available on our website.)

Government Buildings

It may be surprising to know that as many, if not more, government buildings have achieved EPAct 179D deductions as compared to commercial buildings. For government projects, the incentive goes to the design party or parties responsible for the energy-efficient design.

Buildings at all levels of government are eligible for designer tax incentives, including federal, state and local. Frequent qualifying
projects include:

  • Federal – all branches of the U.S. military and all federal departments, including the Veterans Administration
  • State – state universities (most common), courthouses and state prisons
  • Local – kindergarten through 12th grade public schools (most common), city halls, police departments and public libraries

One of the most common projects impacting all government agencies is parking garages. EPAct-eligible government garages include city garages, airport garages, state university garages, community college garages, VA hospital garages, state hospitals, sports stadiums and convention centers.

About the Author

Charles R. Goulding, CPA; Charles G. Goulding; and Raymond Kumar, CPA
Charles R. Goulding is an attorney, certified public accountant and president of Energy Tax Savers, Syosset, N.Y. Charles G. Goulding and Raymond Kumar, CPA, are senior tax analysts with the firm.

1 Comment on "How EPAct Building Tax Incentives Support Retrofits"

  1. retrofitadmin | March 17, 2014 at 10:11 am |

    UPDATE from Energy Tax Savers:

    The section 179D commercial building energy tax incentive expired as of Dec. 31, 2013. Sen. Ron Wyden (D-Ore.) the new head of the Senate Finance Committee has stated he will introduce legislation to extend 55 expired tax provisions including EPAct as of April 2014. President Obama’s recently released budget also contains funding for extending section 179D. Those interested in extension should continue writing in support to their state U.S. Senators and Congressmen. Locate your representatives here:

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