energy consulting engineering 179d energy efficient commercial real estate tax deduction 2016 ashrae...

S E C T I O N 1 7 9 DCommercial Real Estate Energy Efficient Tax Deduction

INTRODUCTION

2SECTION 179DCommercial Real Estate Energy Efficient Tax Deduction

What is 179D?

Qualifying %’s $ Savings

What documents are needed

Who can Benefit?

History/Updates

Case Studies

• If a building achieves a 50% reduction in energy usage, it may fully qualify and could receive a $1.80/SF tax deduction

WHAT IS 179D?


• If the building achieves a 10%-25% reduction in energy usage, for any of three systems (HVAC, Envelope or Lighting), it receives $0.60/SF for each qualifying system

• The energy usage for the building is compared to a reference building based on ASHRAE 90.1-2001 (For buildings built in 2016 or later, the standard is ASHRAE 90.1-2007)

Commercial Real Estate Owners

Lessees of buildings who pay for improvements

Designers of Public Buildings - Engineers, Architects and/or

Contractors that “specify” installation of energy efficient materials

WHO CAN BENEFIT FROM 179D?


Commercial Real Estate-Offices, industrial, retail, supermarkets, commercial buildings, Multi-family buildings that are more than 4 stories tall

TYPE OF BUILDINGS ELIGIBLE

Public Buildings-Schools, Police and Fire Stations, Libraries, Courthouses, Government Offices, Town Halls

1.

2.


WHAT IS THE ENERGY EFFICIENT TAX DEDUCTION BASED ON?

25%

Lighting

15%

HVAC Systems

10%

Building EnvelopesInterior, Enclosed Parking garages,

Fluorescent T5, T8 replacements, LEDHeating, Air Conditioning, Hot Water

Heating, Energy Efficient HVAC SystemsUpgraded roofing materials, building

insulation, and windows, low value SHGC and low U Value windows and wall insulation


2

34

1Partially Qualifying Building (Lighting, HVAC systems or Building Envelope qualifies

individually)

$0.60/SF for each partially Qualifying System

Building Fully Qualifies for $1.80/SF (50% or more energy

efficient)$0.60/SF for each partially

Qualifying System

$1.20/SF for two Qualifying Systems

DIFFERENT WAYS BUILDINGS CAN QUALIFY


2005 EPAct Issued guidance on multiple stimulus packages to benefit

the environment which included 179DHistory of 179D Legislative Policy


•Percentages established, interim ltg rule•Performance Rating Method (Appendix G)•Approved software programs

Notice 2006-52

•Extended eligible dates for 179D•Pass through deduction for designers•20/20/10 percentages established

Notice 2008-40

•Extension and clarification of 179D•25/15/10 percentages established

Notice 2012-26

History of Percentages to Qualify

2008

January 1, 2006-December 31, 2008

2013

January 1, 2006-December 31, 2013

2016

February 24, 2012-currentLighting-16.33%

HVAC-16.33%Bldg Env-16.33%

Lighting-20%HVAC-20%

Bldg Env-10%

Lighting-25%HVAC-15%

Bldg Env-10%


• Retroactive renewal 2015 and Extension through 2016!

• Starting in 2016, buildings placed in service in 2016 are compared to a baseline referencing ASHRAE 90.1-2007 rather than the previous ASHRAE 90.1-2001 Standard

• Taxpayers were able to file for eligible deductions in 2015

• Taxpayers can plan for buildings being put in service in 2016

• Open year tax returns must be amended to obtain the tax deduction for prior years

Recent Congressional budget extends 179D tax deduction!

1 0SECTION 179DCommercial Real Estate Energy Efficient Tax Deduction

• Drawings:• Electrical-Lighting• Mechanical Schedules and

Drawings for HVAC equipment• Architectural Drawings for

building footprint • Building Envelope information on

walls, and windows, roofs, floors

• Lighting Schedules• Building Envelope Materials include

Glazing, Roofing Systems, Insulation• Mechanical Equipment Schedules

• Specifications on HVAC Systems, Lighting and Building Envelopes

Documents Required for Study


What is required to qualify for the 179D Deduction?


1 •179D Studies must be completed by a Qualified Individual and Third Party Verifier

2 •A Qualified Individual is licensed as a Professional Engineer, Architect, or Contractor in the state in which the building is located

3 •A Building Simulation or Energy Model is created (using an IRS approved software) and the percentage savings are determined

4 •For lighting only (with bi-level switching), the Interim Lighting Rule can be applied and the LPD (Lighting Power Density) can be completed using a spreadsheet

What is required to qualify for the 179D Deduction?


5 •In the case of a Designer seeking the deduction as a Pass-Through, the government entity must provide a signed “Allocation Letter”

6 •All energy efficient equipment installed must be listed in the report

7 •A site walk is required to verify installation of specified energy efficient equipment

• Report is created listing the building information, building name, address, the name of the certifier, the percentage savings, and a list of all the energy efficient equipment specified

• A site walk is completed to verify specified energy equipment is installed

• The amount of the deduction is reported on the owner or designer’s tax return

• The report is submitted with the tax return and the energy model and all other documentation is kept by the owner with their filed tax documents

What is required to complete a certification?



• 50,000 SF Supermarket updated to include new T5 lighting and more efficient chillers and boilers

• Qualifies for lighting only

• 50,000 SF* $0.60/SF = $30,000 Tax Deduction

• Reduces basis and accelerates depreciation

• Can be combined with a Cost Segregation Study to further accelerate depreciation

CASE STUDY-Lighting:Commercial Real Estate Owners


• 50,000 SF Supermarket updated to include new LED lighting and more efficient chillers and boilers

• Fully Qualifies

• 50,000 SF* $1.80/SF = $90,000 Tax Deduction

• Reduces basis and accelerates depreciation

• Can be combined with a Cost Segregation Study to further accelerate depreciation

CASE STUDY-Fully Qualifies:Commercial Real Estate Owners

• 50,000 SF High School updated to include new T5 lighting and more efficient chillers and boilers

• Qualifies for lighting only

• 50,000 SF* $0.60/SF = $30,000 Income Tax Deduction!


CASE STUDY-Lighting:Designer ofPublic Building

• 50,000 SF High School updated to include new LED lighting and more efficient chillers and boilers

• Fully Qualifies

• 50,000 SF* $1.80/SF = $90,000 Income Tax Deduction!


CASE STUDY-Fully Qualifies:Designer ofPublic Building

• New lighting is the easiest way to qualify for the program

• Qualifying is based on the percentage the building is more efficient than a Baseline building based on ASHRAE code 2001-90.1

• The Baseline building is not the building prior to improvements, it is a model of the building based on ASHRAE 2001-90.1 (or ASHRAE 2007-90.1 for buildings placed in service in 2016 or later)

IMPORTANT THINGS TO REMEMBER ABOUT 179D


• 179D is a Tax Deduction, not a Tax Credit.

• Buildings larger than 75,000 SF are compared to a VAV system baseline, which is an efficient system. So it is difficult to beat the baseline by 15% unless the installed system is highly efficient

• The amount of the deduction can’t be more than the cost of improvements

IMPORTANT THINGS TO REMEMBER ABOUT 179D


C O N TAC TKari Mueller, PE LEED AP | 1(844) 323-3232 | [email protected]

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