Putting Dollars Back on Campuses
How colleges and universities benefit from the 179D Tax Deduction
Colleges and universities have historically resorted to private donors and alumni to help with the financing of campus improvements. While these methods have proven to be effective, many administrators and facilities directors are unaware of how certain tax incentives established by the federal government can be used to reduce the cost of construction for colleges and universities.
Certain green building tax incentive programs, like the 179D Tax Deduction, can allow educational institutions to recoup valuable project funds to reinvest back into future campus developments and infrastructural upgrades. Through the 179D Tax Deduction, campuses have designed and implemented energy-efficient buildings that lay the foundation for new, more sustainable college experiences.
History of the 179D Deduction
First introduced as part of the Energy Policy Act in 2005, the 179D Tax Deduction serves as a clean energy tax incentive for energy-efficient buildings. This initiative was established to encourage building owners to reduce energy consumption by rewarding them with tax savings for new or renovated buildings that help lower the carbon footprint and improve sustainability measures.
While the Deduction was originally aimed at commercial building owners, it was later modified to allow federal, state, and local governments to participate. Additionally, the signing of the Inflation Reduction Act in 2022 expanded the program and its benefits to include tax-exempt entities, such as private and public colleges and universities.
By upgrading the heating and cooling systems, interior lighting, or building envelope and insulation systems, eligible buildings completed after Jan. 1, 2023, can qualify for up to $5.36 per square foot of building area. Eligible buildings put in place in 2024 can receive up to $5.65 per square foot.
How to Claim 179D
Because both private and public universities are tax-exempt entities, the 179D program allows universities to allocate available tax deductions to the eligible designers of their choice for qualified projects through an allocation letter process. An allocation letter is required for a designer to claim any available deduction for their work with a university.
Once an allocation letter has been awarded, a non-partial, professionally licensed, third-party is required to certify that the building claiming the Deduction meets certain energy criteria set by the IRS and ASHRAE standards. Through software approved by the government, this process is completed from licensed engineers creating energy modeling analysis of the project’s expected energy cost savings.
How Colleges and Universities Benefit
By designing or renovating energy-efficient buildings on campuses, the allocated benefits that result from the 179D Tax Deduction provide substantial savings and cost reduction for colleges and universities. With reduced energy costs and the potential for additional funding that comes from the 179D Design Rebate, more money can be put back into campus projects and other sustainability improvements that help support the larger community.
Create Additional Funding Strategies: While private contributions have traditionally funded various campus projects, the 179D Deduction, along with other green building tax incentives, can be used to reduce costs and free up additional funds. With increased cash flow and an expanded bottom line, colleges and universities can establish additional funding strategies for future developments on campus.
Generate a 179D Design Rebate: Newly installed or renovated components that meet the energy reduction requirements for 179D can also result in a design rebate, which the college or university receives from the qualified designers of the newly constructed or renovated buildings. This design cost reduction creates additional opportunities for colleges and universities to then reinvest in their facilities and their students’ educational experience.
Institutions of higher education play a critical role in shaping the future of sustainability by constructing and improving buildings that help reduce the carbon footprint. Through the 179D Tax Deduction, campuses across the nation can unlock the power of energy-efficient buildings by using the financial savings from these environmentally friendly facilities to create redefined experiences for students.
To learn more about how to put dollars back on campuses, contact a 179D expert at KBKG today.