Industry Insights

The Energy Efficient Commercial Building Property (EECBP) deduction, or Section 179D, allows—as an immediate tax deduction—up to $1.80 per square foot for the installation of EECBP, up to the cost of the qualifying property. EECBP placed in service after January 1, 2006, is eligible for this deduction. This immediate deduction is in lieu of depreciating the property generally over a 39-year period. Both new construction and retrofit projects may qualify. In addition, EECBP designers for governmental entities may qualify for a permanent tax deduction.

Generally speaking, EECBP must consist of interior lighting systems, heating, cooling, ventilation, hot water systems and the building envelope of a property located in the United States and subject to American Society of Heating, Refrigeration and Air-Conditioning Engineers (ASHRAE) Standard 90.1-2001. These systems must reduce the total energy and power costs of the building by 50 percent or more compared to a reference building meeting the minimum requirements of Standard 90.1-2001. Partial deduction of 60 cents per square foot, limited by cost, may be available for any individually installed system (lighting, heating and cooling or building envelope) that exceeds Standard 90.1-2001 by an applicable percentage based upon type of property.

(Click here for a full description and explanation of EECBP qualifications and documentation required to claim the tax deduction.)

Originally, this tax benefit had to be claimed in the year qualifying EECBP was placed in service. This requirement presented many obstacles for taxpayers looking to claim a benefit if not originally captured. Amended tax returns were required for EECBP placed in service in past years, the statute of limitations barred taxpayers from claiming the tax benefit for projects placed in service more than three years ago, and tax deductions from EECBP placed in service in 2006 and 2007 were effectively lost.

In January 2011, the IRS issued Revenue Procedure 2011-14, offering taxpayers the opportunity to catch up their past benefit on their current-year income tax return by filing Form 3115, Application for Change in Accounting Method. This change is a great win for taxpayers. Both building owners and EECBP designers for governmental entities may take advantage of this new law. Taxpayers continue to have the option to amend prior tax returns if that yields better results.

All original certification requirements must still be met, and EECBP designers must still obtain the necessary signed authorization form from the governmental entity for the tax benefit to be allocated to them. While these forms are not required to be attached to the original tax returns claiming the EECBP deduction, they must be attached when claiming the tax deduction using Form 3115.

If you have new construction or retrofit projects placed in service after January 1, 2006, that may qualify for the EECBP deduction, you should begin documenting these qualified projects and expenses immediately. Contact your BKD advisor for more information.