Financing HVAC Systems with §179D Deductions

Too often the recommendation is to retrofit an existing building with energy efficient HVAC in order to save money on energy costs, but then the question arises - how to fund the investment?  The considerations:  Would a quick fix or band-aid on the system do for the time being?  Would a very low first cost make sense?  The owner is faced with the choice of coming up with the required capital or continuing to face increased operating costs and future repairs.  The ROI on new, energy-efficient systems may take a bit longer, but the equipment will perform more reliably, provide a better environment and lower operating costs along the way.   Most business owners will assume that funding for energy efficient upgrades has to come from dipping into their equity in the facility, or from an outside funding source such as a bank loan. 

Fortunately, there are alternative strategies that can be put into place to pay for energy efficiency projects by significantly lowering the business or building owner’s tax burden.  One tax benefit that facility owners may not be aware of is found in section 179D of the Internal Revenue Code which came about as part of the Energy Policy Act of 2005.  §179D includes full and partial tax deductions for investments in energy efficient commercial buildings that are designed to increase the efficiency of energy-consuming functions.  The deduction available is up to $.60 per square foot for lighting, HVAC and building envelope, creating potential for $1.80 per square foot if all three components/subsystems qualify. These deductions are applicable to buildings that were either built or retrofitted after December 31, 2005.  In order to qualify for the deduction, the taxpayer must receive a third party energy efficiency certification.

Professional expertise is essential when looking at HVAC system upgrades that will qualify for the §179D deduction.  The building that is to be improved with the new HVAC system must be modeled by a qualified individual using IRS prescribed software, and blueprints/plans and specifications for the new system may be necessary.  Based on the specific needs and characteristics of the property, as well as the variety of HVAC and control systems available in the marketplace today, it makes sense to model any and all possible systems to find the most cost effective solution for the facility.  Third party certification is required in order for the system to qualify.

Instead of looking to outside funding sources or reducing valuable equity to fund energy efficient HVAC upgrades or systems, it makes sense to enlist the skill and knowledge of qualified professionals to coordinate green building improvements.   Whether in the planning and design stages of a new facility or making decisions on retrofits or upgrades of existing commercial buildings, working with these pros will allow commercial building owners to not only pinpoint the most effective improvements to make initially, but also create a cohesive plan to ensure that the maximum energy savings and tax benefit is received from the capital expenditure.  

For more information please contact crginfo@capitalreviewgroup.com directly at 602.741.7776

CAPITAL REVIEW GROUP does not advise on any personal income tax requirements or issues. Use of any information from this document or web site referred to is for general information only and does not represent personal tax advice either express or implied. You are encouraged to seek professional tax advice for personal income tax questions and assistance.