The President signed the tax extender package; Further Consolidated Appropriations Act into law on Friday December 20th, 2019. This legislation reestablishes the Section 179D and 45L programs retroactively back to 1/1/2018 and extends them forward through 12/31/2020.
We’ve long been hoping to see the extension of EPAct 179D and 45L, as these incentives can be quite powerful, particularly for large properties. These programs were initially enacted as part of the 2005 Energy Policy Act to incentivize taxpayers to design and improve properties for better energy efficiency.
This extension will be subject to the same guidelines as those that applied to the most recent extension. As before, properties eligible for the 179D deduction may be either commercial property or residential rental property at least 4 stories high. New construction and renovation projects are both eligible for this tax strategy. Energy-efficient improvements made to the following building assets can contribute to this benefit:
- Interior lighting
- HVAC
- Building envelope assets
The 179D economic benefit is achieved via a onetime deduction of up to $1.80/SF of improved building space, and improvements must exceed the previously established benchmark of ASHRAE 90.1 2007 standards by at least 50%.
45L-eligibility is restricted to residential rental property with a maximum of 3 stories, providing a $2000/unit tax credit for qualifying unit/s.
Many clients may be able to take advantage of this news to get even more value out of their Capstan projects. As in the past, taxpayers may use a 3115 to complete a look-back study on assets or properties placed into service after 1/1/2006 for 179D. There is no 3115-method available for capturing the 45L credit, however past returns may be amended.
The Capstan team is available to assist you with any questions you might have. We’ve already started digging through our archives to find qualifying projects, and we look forward to helping further maximize your tax savings this year.