Energy-efficient commercial building tax deductions

Unlocking tax savings with energy-efficient commercial building deductions

As a business owner, you're always looking for ways to reduce your tax liability and improve your bottom line. One often overlooked opportunity is the energy-efficient commercial building deduction, also known as Section 179D. This powerful tax incentive rewards businesses for investing in energy-saving improvements to their commercial properties.

In this blog post, we'll dive into the details of Section 179D, explore the benefits of energy-efficient upgrades, and show you how Instead can help you navigate the complexities of claiming these valuable deductions.

Understanding Section 179D

Section 179D of the Internal Revenue Code provides a tax deduction for energy-efficient improvements made to commercial buildings. This deduction is available to building owners and designers who make qualifying improvements to new or existing properties.

To be eligible for the deduction, the building must meet specific energy-saving targets set by the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) Standard 90.1. The deduction is based on the square footage of the building and can be as much as $1.00 per square foot for properties that achieve a 50% reduction in energy costs.

Qualifying Improvements

A wide range of energy-efficient improvements can qualify for the Section 179D deduction, including:

• Lighting systems
• HVAC systems
• Building envelope (insulation, windows, doors, roofs)
• Hot water systems

These upgrades must be made to the interior lighting systems, heating, cooling, ventilation, and hot water systems, or the building envelope. The improvements must also be certified by a qualified professional to ensure they meet the necessary energy-saving targets.

Benefits of energy-efficient upgrades

Beyond the substantial tax savings offered by Section 179D, investing in energy-efficient improvements can provide numerous benefits for your business:

1. Lower Energy Costs: By reducing your building's energy consumption, you can significantly lower your utility bills, leading to long-term cost savings.
2. Improved Comfort: Energy-efficient upgrades can enhance the comfort of your building, creating a more pleasant environment for employees and customers alike.
3. Increased Property Value: Energy-efficient properties are more attractive to potential buyers or tenants, which can increase the value of your commercial building.
4. Environmental Sustainability: By reducing your carbon footprint, you demonstrate your commitment to environmental sustainability, which can improve your company's reputation and attract environmentally-conscious customers.

Navigating the complexities of section 179D with Instead

Claiming the Section 179D deduction can be a complex process, requiring careful documentation and adherence to specific guidelines. That's where Instead comes in. Our AI-driven platform is designed to simplify the process of identifying, calculating, and implementing advanced tax strategies like the energy-efficient commercial building deduction.

Here's how Instead can help you maximize your tax savings:

1. Eligibility Assessment: Instead's AI-powered platform guides you through a series of questions to determine if your energy-efficient improvements qualify for the Section 179D deduction.
2. Expense Tracking: Easily track and categorize qualifying expenses, ensuring accurate calculation of the deduction.
3. Documentation Generation: Instead automatically generates comprehensive documentation, including certifications and expense records, ensuring compliance with IRS requirements.
4. Collaboration with Accountants: Seamlessly share your Section 179D strategy with your accountant, enabling them to review and file the claim with confidence.
5. Ongoing Support: Instead's team of tax experts is available to provide guidance and support throughout the entire process, ensuring a smooth and successful implementation of the energy-efficient commercial building deduction.

Case study: ABC company's energy-efficient upgrade

To illustrate the potential impact of the Section 179D deduction, let's consider a hypothetical case study involving ABC Company, a mid-sized manufacturing firm, that installed the upgrades after tax year 2023.

Background:

• ABC Company owns a 50,000 square foot commercial building.
• The company invested in energy-efficient lighting, HVAC, and insulation upgrades.
• The improvements achieved a 40% reduction in energy costs.

Qualifying Expenses:

• Lighting system upgrades: $150,000
• HVAC system upgrades: $200,000
• Building envelope improvements: $100,000
• Total Qualifying Expenses: $450,000

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Savings per square foot calculation:

• Energy cost reduction: 40%
• Square footage cost for 25% energy savings:  $.50 per square foot
• Savings above 25% (40% - 25%): 15%
• Additional percentage savings:  15% x $.02= $.30 per square foot (maximum $1.00)
• Total savings per square foot ($.50 + $.30) = $.80 per square foot

Calculation of the Section 179D Deduction:

• Building square footage: 50,000 sq. ft.
• Deduction per square foot: $0.80 (based on the 40% reduction)
• Total Section 179D Deduction: 50,000 sq. ft. x $0.80 = $40,000

Impact on Tax Liability:

• ABC Company's federal income tax liability for the current year: $500,000
• After applying the Section 179D deduction of $40,000, the company's net tax liability is reduced to $460,000, resulting in substantial tax savings.

By leveraging the energy-efficient commercial building deduction, ABC Company was able to offset a portion of its upgrade costs, freeing up valuable resources that can be reinvested into further improvements, expansion, or other strategic initiatives.

Embrace the future of tax optimization with Instead

The energy-efficient commercial building deduction is just one of the many tax-saving opportunities available to businesses. At Instead, our mission is to revolutionize the tax experience by leveraging cutting-edge technology and AI-driven solutions.

By partnering with Instead, you gain access to a comprehensive suite of tools and resources designed to streamline tax planning and compliance. Our platform not only guides you through the intricacies of various tax strategies but also provides ongoing support, ensuring that you stay ahead of the curve in an ever-evolving tax landscape.

Getting started with Instead

Instead's tax planning platform helps building owners and tax professionals maximize Section 179D benefits through:

• Project qualification assessment
• Deduction calculations
• Documentation management
• Certification tracking
• Compliance monitoring

Begin your energy efficiency journey

Don't miss out on valuable tax savings while improving your building's performance. Start your free trial with Instead today to:

• Assess your eligibility
• Calculate potential deductions
• Plan improvements
• Track certification
• Maximize tax benefits

Transform your building's future

Energy efficiency improvements offer both immediate tax savings and long-term cost reductions. Contact our team today to learn how Instead can help you navigate Section 179D deductions and maximize your tax savings while improving your building's performance.