10 Essential Elements of a Quality 179D Study

Introduction

Navigating tax deductions for energy-efficient commercial buildings can be challenging. The 179D deduction, also known as the Energy Efficient Commercial Buildings Deduction, is a key provision of the U.S. tax code that encourages the adoption of energy-efficient technologies in commercial buildings. Section 179D offers a tax deduction for property owners, developers, and designers who make qualifying energy-efficient improvements to their commercial buildings.

However, to take full advantage of these benefits, you need a thorough and precise study. This guide will help you understand the essential elements of a 179D study, making it easier to maximize your tax deductions without unnecessary complications.

1. Detailed Building Description: Provide an in-depth description of the building’s systems and components, including HVAC systems, lighting, and the building envelope. Detail how each element contributes to overall energy efficiency.

2. Accurate As-Built Drawings: Ensure that as-built drawings of the building are accurate and up-to-date. These drawings are crucial for verifying the energy-saving measures implemented during construction or retrofits.

3. Comprehensive Site Inspection: Conduct a thorough on-site inspection to verify the implementation of energy-efficient measures. This inspection ensures that the building’s actual performance aligns with the modeled performance. A site inspection must be performed by a qualified individual (licensed engineer or contractor) with licensed jurisdiction in the state in which the building is put into service in order to be compliant. 

4. Documentation of Energy-Efficient Products: Document the specific energy-efficient products and technologies used in the building. Include manufacturer specifications, product datasheets, and other relevant documentation to substantiate energy efficiency claims. For 179D deduction, eligible energy efficient equipment include HVAC & hot water systems, interior lighting, and the building envelope. 

5. Comprehensive Energy Modeling: A detailed energy model of the building is essential. This model should compare the building’s energy performance against a baseline defined by ASHRAE Standard 90.1, ensuring it meets the necessary energy efficiency thresholds.
   

5. Compliance with ASHRAE Standards: Ensure that all energy efficiency measures comply with the applicable ASHRAE standards. This compliance is mandatory for the 179D deduction and demonstrates adherence to recognized industry benchmarks.

7. Energy Savings Calculations: Include detailed calculations of the energy savings achieved through implemented measures. Use credible and recognized methods to ensure these calculations meet IRS requirements.

8. Professional Certification: A licensed professional, such as a registered engineer or a licensed architect, must certify the energy savings. This certification is critical for the IRS to accept the 179D deduction claim. If a designer will be claiming the 179D deduction, they will need an allocation letter signed by the building owners and designer. 

9. Detailed Report of Findings: Prepare a detailed report outlining the findings of the 179D study. This report should include all calculations, certifications, and supporting documentation to provide a clear and comprehensive overview of the building’s energy performance and meet proper record-keeping guidelines as outlined by the IRS. 

10. Calculation of Tax Benefits: Include a clear calculation of the tax benefits resulting from the 179D deduction. This calculation should outline the savings and the impact on the company’s tax liability. In addition, Form 7205 will be prepared and attached to the tax return for the year of the 179D deduction is claimed.

Conclusion

A quality 179D study involves meticulous planning, accurate documentation, and professional certification. By including these essential elements, businesses can ensure they maximize their tax deductions and achieve significant energy savings. When you need expert assistance, TaxTaker completes the entire process for our clients from A to Z, making it easier to benefit from the 179D deduction and achieve significant energy savings. To see if your building qualifies for the 179D deduction, see our calculator here. 

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