Using the Federal 179D Tax Deduction to Cut Your Tax Liability

Using the Federal 179D Tax Deduction to Cut Your Tax Liability

Slash your company's federal income tax bills for work done at government-owned facilities.

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Linda McCluskey, managing director of energy credits and incentives, Alliant Group, Houston, Texas, helped NECA attendees understand how a confusing income tax deduction for energy-efficient commercial building projects can help them slash their companies' federal income tax bills for work done at government-owned facilities.

In December, 2015, Congress passed and the President signed into law the Protecting Americans from Tax Hikes (PATH) Act, a bipartisan tax bill that extended a number of expiring tax provisions. Along with extending section 179D, the PATH Act also includes key compliance changes for the deduction beginning in 2016.

McCluskey said electrical contractors performing the installation of energy-efficient interior lighting (not exterior lighting of any kind) or HVAC systems in government-owned local, state or federal buildings can reduce their taxable income by working with their tax advisors to claim the deduction.

Alliant Group uses a custom software package to ensure projects are properly certified to claim the deduction. The 179D deductions vary by the amount of energy the new system or systems save and are allocated on a per-square-foot basis. A rebate for a full-building retrofit can be as high as $1.80 per square foot. Depending on when a building is completed, in retrofit projects interior lighting systems must save no less than 20% to 25% of the annual energy costs of the previous lighting system. Maximum deductions are available for projects retrofitting a building's HVAC, interior lighting and certain other applicable systems certified to be saving 50% of their energy costs.

McCluskey said in one case a NECA contractor claimed a $3.2 million tax deduction, and she showed examples of several high six-figure 179D deductions. Work done from 2013 forward can meet the requirement.

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