Congress Resurrects Energy-Efficient Tax Breaks
The massive federal spending bill enacted in late 2019 renews a potentially valuable energy-efficiency tax credit and a deduction that had expired at the end of 2017. The renewal is retroactive to 2018, so, if you qualified for the credit or deduction for that year, consider whether it’s worthwhile to file an amended tax return.
The Section 45L credit
The energy-efficient new home tax credit is available to taxpayers with depreciable basis in multifamily and residential projects during construction for 2018 through 2020. Eligible properties include single-family homes, apartments, condos, assisted living homes and student housing.
Qualified taxpayers receive a $2,000 credit against their tax liability for each new or renovated energy-efficient unit that’s first leased or sold by the end of 2020. Eligible property must be no more than three floors high (not including below-grade parking) and include some energy-efficient features, such as certain wall and roof insulation, double- or triple-pane windows, insulated exterior doors, and reflective roofing materials.
You must obtain certification from an eligible certifier before claiming the credit. The credit received should more than make up for the cost of the certification.
The Section 179D deduction
Tax deductions of up to $1.80 per square foot of a commercial building’s floor area are available for newly constructed buildings or building improvements that are energy-efficient in the year they’re placed in service. Unlike credits, which reduce tax liability on a dollar-for-dollar basis, deductions reduce only taxable income.
Eligible properties include, among others, retail, office and industrial buildings, apartment buildings (at least four floors) and warehouses. Deductions also may be available to architects, engineers, contractors, environmental consultants and energy service providers who enhance the energy efficiency of a new government-owned building or make energy-saving renovations and retrofits to existing government-owned buildings.
To qualify, you must install interior lighting, building envelope or heating, cooling, ventilation or hot water systems that reduce the building’s total energy and power cost by 50% or more in comparison to a building meeting certain minimum requirements. A licensed contractor or professional engineer must model the energy performance of the building against the comparator.
Each of the three elements could get you a deduction of up to $0.60 per square foot. The deduction is available for new construction and renovations through 2020.
Here to help
If you plan to pursue energy-efficient tax credits or deductions, let us know. We can help secure the necessary energy modeling and certifications to satisfy the requirements, as well as determine any other federal, state or local tax breaks that might apply. Contact Nick Sarinelli, CPA, CFE or Doug Collins, CPA on (973) 298-8500 or visit our real estate services page for more information.