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Eco-Friendly Buildings & Tax Breaks: Navigating the Green Deductions 🌱🏢
Hey, eco-conscious builders and architects! Ever thought of combining your love for the environment with some sweet tax incentives? If you’re taking the eco-friendly route with commercial buildings, there are some deductions you might not want to miss.
1. The Green Deduction 101
Thinking of installing energy-efficient commercial building property (EECBP) or retrofitting with energy efficient upgrades (EEBRP)? Then you’re in luck! Thanks to the Internal Revenue Code Section 179D and some updates from the Inflation Reduction Act of 2022, you can claim tax deductions for doing so. The more energy you save, the bigger the break. Plus, there’s a cherry on top if you’re sticking to prevailing wage and apprenticeship requirements.
2. Who Gets to Claim?
Starting from 1st January 2023:
- Commercial building owners, you’re in!
- If you’re designing EECBP/EEBRP for tax-exempt entities like government bodies, tribal governments, and other exempt organizations, you’re eligible too.
Before 2023, the pool was a tad bit smaller with only qualified commercial building owners and a select few designers in the mix.
3. Which Buildings Make the Cut?
The criteria are specific:
- Your building should be on American soil.
- Should follow the ASHRAE and the Illuminating Engineering Society’s standards.
- Deductions are mainly for improvements to interior lighting, HVAC systems, or the building’s envelope.
Bonus: The energy-saving target? Aim for at least 25% less energy and power costs than a standard building.
4. Crunching Numbers for 2023 Onwards
Let’s talk amounts. For 2023 and onwards, your deduction is the lesser of the cost of the installed property or:
- $0.50/sq.ft. for 25% energy savings.
- An additional $0.02/sq.ft. for each percentage point above 25%.
- Maxing out at $1.00/sq.ft. for 50% energy savings.
Oh, and don’t forget, if you’ve taken deductions in the last 3-4 years, these will affect your max allowable deduction.
5. The Apprentice Bonus
Starting 2023, if you meet the wage and apprenticeship requirements, you can multiply your deduction by five!
6. For the 2022 Crew and Before
Your deduction caps at $1.80/sq.ft. for 50% energy savings, with some adjustments for previously claimed expenses. For the nitty-gritty, check out Notices 2012-26, 2006-52, and 2008-40.
7. All About ASHRAE Standards
The rule of thumb:
- For buildings started post-January 1, 2023, and in service after January 1, 2027, use ASHRAE Standard 90.1-2019.
- For those before these dates? Stick with ASHRAE Standard 90.1-2007.
With these guidelines in hand, you’re ready to embark on your energy-efficient journey, reaping both environmental and financial benefits! Build green and save some green! 💰🌿
For more information on these eco policies visit the irs.gov website HERE. To learn about other tax saving ideas that will benefit you tens of thousands of dollars over your lifetime check out our DeTax University program and discover what tax breaks you are missing out on in your business, your investments, your home and family and your real estate!