179D for Governments
Uncover how tax-exempt entities benefit from
energy-efficient building upgrades
While government entities and other nonprofit organizations are exempt from certain tax programs, the 179D Tax Deduction allows these sectors to capitalize on the financial benefits this particular Green Building Tax Incentive offers. Originally signed into law to encourage energy-efficient improvements in commercial buildings, 179D also provides a unique avenue for tax-exempt entities to benefit.
By investing in qualifying energy-efficient projects, tax-exempt entities are contributing to a more sustainable future and encouraging designer groups to reap the benefits of developing buildings that reduce energy consumption. 179D serves as a powerful way for tax-exempt organizations to stay committed to making a positive impact on the environment while increasing the ROI from such investments.
The 179D Expansion
Section 179D was first introduced with The Energy Policy Act of 2005 and aimed to reduce energy consumption in commercial and government buildings by rewarding building owners and designers with tax incentives for energy-efficient designs. In 2022, the Inflation Reduction Act (IRA) expanded the program’s reach beyond strictly private and government-owned facilities to allow more buildings to qualify for the Deduction. Buildings owned by non-profits and many other tax-exempt organizations, including K-12 schools and private colleges and universities, can now allocate 179D tax deductions to the qualifying designers involved in the project.
Along with extending the reach of the kinds of buildings that qualify, the IRA also increased the amount that can be claimed to be up to $5.65 per square foot for eligible projects completed after January 1, 2024, and if employees that worked on the project are paid with prevailing wages. For projects put in place in 2023, buildings can qualify for up to $5.36 per square foot.
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The Path to Eligibility
For a building owned by a tax-exempt entity to establish its eligibility for the 179D Deduction, an engineering analysis is required, as stipulated by the IRS. Through KBKG’s proven process, government and other tax-exempt entities follow a traditional model that has resulted in KBKG’s clients successfully benefiting from 179D.
Find a Trusted Provider
To find a trustworthy 179D provider, candidates should seek out the most important traits in an advisor, including a team of industry-certified experts, a well-defined roadmap for claiming 179D benefits, and transparent communication regarding both consulting fees and how much a potential candidate can claim
KBKG lays the foundation for a project’s success by taking the necessary time to gather information and establish clear goals. As a full-service provider, KBKG works closely with clients to identify expectations and, if needed, leverages its government relations team to help with obtaining a secured allocation letter at no additional cost.
The technical team, comprising of energy modelers and engineers, analyzes the completed drawings and develops building models using IRS-approved software. Our software analyzes the hourly energy performance of the building as designed, compared to an ASHRAE reference building to determine the level of qualification.
One of our licensed professional engineers visits the completed building and reviews and inspects the energy efficient building components to confirm the accuracy of our energy model and the qualification of the building.
Step 5: Establishing Eligibility
The multidisciplinary team of industry experts collaborates with the client to identify financial-saving opportunities related to the energy-efficient design. By analyzing the materials and components required in the building’s construction and understanding how the building was constructed, KBKG maximizes the value of the 179D Deduction.
Due to their tax-exempt status, many government entities and other tax-exempt organizations wonder how they benefit from this initiative. KBKG has answered some of the most common questions that government entities and other tax-exempt organizations have about 179D.
- Because tax-exempt entities do not pay taxes, they cannot claim 179D but can still benefit from the program by allocating the Deduction to the party (or parties) involved.
- By incentivizing a designer to make a tax-exempt building more energy-efficient, the entity allocating 179D benefits from this green building initiative through things like reduced utility bills that allow for federal dollars to be put back into the community.
- The entity allocating 179D determines which of the eligible parties they choose to allocate to, including the different architects, engineers, and design-build contractors involved in the project.
- For 179D to be claimed, a building’s energy consumption needs to be reduced through the ground-up construction or improvement in energy-efficient HVAC, lighting, or building envelope systems. There are different paths to claiming 179D, all of which are required to receive certifications from a credentialed, third-party consultant.