Maximizing Your Savings: Understanding the Impact of Energy-Efficient Home Improvements on Tax Credits
- Temira Kaser
- Apr 2
- 2 min read
SECTION 179D – COMMERCIAL BUILDINGS ENERGY-EFFICIENCY TAX DEDUCTION
The Section 179D Commercial Building Energy-Efficiency Tax Deduction is now a permanent provision, providing significant tax benefits to architects, engineers, and construction companies who meet specific energy-efficiency standards. To qualify for this deduction, corporations must adhere to prescribed time and contract criteria.
A key consideration in the construction of new homes or the renovation of existing properties is ensuring compliance with both local and federal building codes. Section 179D offers a powerful incentive for adopting sustainable, eco-friendly construction practices. This tax deduction encourages the integration of energy-efficient systems by rewarding those who meet stringent energy codes and green building standards.
Eligible taxpayers can claim a deduction of up to $1.80 per square foot, or a partial deduction of $0.60 per square foot, for qualifying lighting, HVAC, and building envelope upgrades that comply with the requirements outlined in Section 179D under the Energy Policy Act (EPAct). By meeting these criteria, businesses can significantly reduce costs while contributing to long-term environmental sustainability.
SECTION 45L – ENERGY-EFFICIENT HOME CREDIT
The Energy Efficient Home Credit, introduced through the Emergency Economic Stabilization Act of 2008, provides a $2,000 tax credit for developers of energy-efficient homes constructed after August 8, 2005. This credit applies to residential units that demonstrate heating and cooling energy consumption below the specified 2004 energy standards. Given the significant changes in energy regulations over the past few years, many developers are already building homes that qualify for this credit.
Even if the form has not been updated, developers still have the opportunity to claim any eligible credits before the expiration of the federal statute of limitations, which is typically three years. Developers of apartment complexes, residential condominiums, and production houses built after August 8, 2005, should evaluate their projects to determine eligibility for this energy-efficient tax credit.
SECTION 48 – ENERGY TAX CREDIT AND GRANTS
The Section 48 Energy Tax Credit provides a 30% tax credit for individuals and businesses that invest in solar energy systems. Additionally, a 10% tax credit is available for those who purchase qualified stationary microturbine power plants, certain geothermal equipment, heat pumps, and combined heat and power (cogeneration) systems. This provision applies to property installed between December 31, 2005, and January 1, 2017.
Furthermore, businesses that do not require tax credits may qualify for a federal grant in lieu of these tax benefits. The Section 48 property is subject to a five-year tax recovery period, with potential bonus depreciation deductions of up to 50% if the property is placed in service during a qualified year. Additionally, businesses can leverage a cost segregation study to accelerate depreciation on qualifying assets, increasing overall tax benefits.
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