Understanding Section 179D and Section 45L for Building Owners

If you own commercial, residential, or multi-family buildings, understanding your tax benefits can be a game-changer. Two key tax incentives, Section 179D, and Section 45L, can lead to significant savings for those who qualify. At DimovTax, we are here to make these tax rules easier to understand. In this guide, we will break down Sections 179D and 45L, showing you how these tax breaks can work to your advantage.

Section 179D: Tax Deductions for Energy-Efficient Commercial Buildings

Section 179D is all about encouraging energy efficiency in commercial buildings. If you have made your building more energy-efficient, this section could mean a nice tax deduction for you.

Eligibility and Requirements:

• Who Qualifies: Owners of commercial buildings, including office spaces, warehouses, and retail centers, can qualify. Architects, engineers, and contractors responsible for designing public buildings may also be eligible.
• Qualifying Improvements: The deduction applies to energy-efficient improvements in lighting, heating, cooling, ventilation, and the building envelope (walls, roof, windows, doors).
• Certification Required: An independent third party must certify that the improvements result in a specified percentage reduction in energy costs.

Deduction Details:

Amount of the deduction for 2023 and after:

• Base Deduction: $0.50 per square foot for buildings achieving 25% energy savings.
• Incremental Increase: An additional $0.02 per square foot for each percentage point of energy savings above 25%.
• Maximum Deduction: Up to $1.00 per square foot for buildings with 50% energy savings.
• Prevailing Wage Bonus: If local prevailing wages and apprenticeship requirements are met, the maximum deduction can increase to five times the savings per square foot amount.

Example:

Standard Deduction: Suppose your building achieves 30% energy savings. Without considering the prevailing wage, you would calculate your deduction as $0.50 + (5 x $0.02) = $0.60 per square foot.

With Prevailing Wage Bonus: If you meet the prevailing wage and apprenticeship requirements, this amount could increase up to five times, potentially maxing out your per-square-foot deduction.

Amount of the deduction for a property placed in service before January 1, 2023:

• Amount: Up to $1.80 per square foot of your building, depending on how much energy you are saving.
• Partial Deductions: Even if you only upgrade one system (like lighting, HVAC, or building envelope), you could still get a deduction of $0.60 per square foot.

Section 45L: Tax Credits for Energy-Efficient Residential and Multi-Family Buildings

Section 45L, known as the Energy-Efficient Home Credit, is aimed at builders and developers of residential properties, including single-family and multi-family buildings.

Eligibility and Requirements:

• Who Qualifies: Eligible claimants include builders and developers of new homes or dwelling units that meet specific energy standards.
• Qualifying Properties: Homes or units in multi-family buildings, including apartments and condominiums, must be three stories or less.
• Energy Standards: The property must achieve energy efficiency that exceeds the standards of the 2006 International Energy Conservation Code standards by at least 50%.

Credit Details:

• For homes acquired from 2023 through 2032, the tax credit amount can be up to $5,000. This depends on whether the home meets Energy Star or Zero Energy Ready Home program requirements.
• For homes acquired before 2023, the credit amount remains at $1,000 or $2,000, based on the energy-saving criteria met.
• Builders can still claim the credit in the year the dwelling is first sold or leased.

Need Help?

Dealing with tax incentives can get complicated, but that’s where DimovTax can help:

• The requirements of Sections 179D and 45L can be complex. Our team at DimovTax has the expertise to guide you through the eligibility and certification processes.
• Every building and project is different. We will help you figure out exactly how these incentives can work for you.
• We will ensure all your paperwork is in order, so you can claim these benefits worry-free.
• Tax laws change, and we stay on top of them, so you don’t have to.

Sections 179D and 45L offer great ways to save on taxes while making buildings more energy-efficient. Understanding and using these tax benefits can make a big difference for your bottom line. At DimovTax, we are here to help you make the most of these opportunities. Contact us today to learn how these tax breaks can benefit your property projects.