Cash Benefit of 179D deductions
I get asked all the time about the value of a tax deduction, and specifically, the 179D deductions. Some folks also call them EPACT (Energy Policy Act) deductions. I had a client ask today about it.
To give you some background, the Energy Policy Act of 2005 enacted Section 179D of the US Tax Code, which allows for a tax deduction up to $1.80 per square foot to a taxpayer for the cost of energy efficient commercial building property that the taxpayer places in service after December 31, 2005, where such improvements achieve a 50% or greater reduction in the energy and power costs as compared against the ASHRAE 90.1 – 2001 benchmark. The Emergency Economic Stabilization Act of 2008 (HR-1424), which was signed into law in 2008, extends the benefits of the Energy Policy Act of 2005 through December 31, 2013.
In the case of an energy efficient commercial building property which does not qualify for the entire $1.80 per square foot deduction as a result of not meeting the 50% or more reduction in energy and power costs standard, the law provides for partial tax deductions for partially qualifying property related to (a) building envelope up to $0.60 per square foot, (b) heating, cooling, ventilation, and hot water up to $0.60 per square foot, and (c) interior lighting from $0.30 up to $0.60 per square foot.
So how much is it worth to you? Here is a quick example of how the math works:
100,000 sq feet
x $1.80 per sq foot (you can qualify for .30 up to 1.80 as noted above)
= $180,000 TAX DEDUCTION
So what does that mean to your business?
Just multiply the deduction amount times your tax rate, usually around 35%.
$180,000 TAX DEDUCTION
x 35% Tax rate
= $63,000 (Cash Benefit of deduction)
You owe the US government $63,000 less than you did without the tax deduction. That is cash in your coffers.
Make sense?
Interesting, I`ll quote it on my site later.
Truden
I found this article useful in a paper I am writing at university. Hopefully, I get an A+ now!
Thanks
Bernice Franklin
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Hello,
I would like to know what IRA form shall be used to claim federal tax deduction for commercial lighting upgrade from 400W MH to 250W induction light in Maryland Shopping Mall?
I have read many related information and know I am eligible to claim, but How to apply?
Daphne
Daphne,
Thanks for the question. There is no special form to claim the deduction. You should include the amount of the deduction in the amount in the “Other deductions” line of the tax return and a statement listing the energy efficient procedure (commercial lighting upgrade in your case) and the amounts of “other deductions” should be attached to the return. As an FYI, you need to retain the necessary certifications and documentation to claim the deduction. You need an engineer or contractor to properly document your deduction.
If you need any help with that, email me at bobby (at) greensquared.com.
Thanks Bobby, I did not get the link address when I first click on it, the comment-37 was cut off and left out.
Daphne
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You are welcome, payday, and thank you for the interest and nice comments.
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Thanks hitman. That’s what blogs are for! I’m not writing for Newsweek! Ha.
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