Although often referred to as the Section 179 expense deduction, it is important to realize that this is actually a tax deduction that is not based on expenses at all. In fact, the Section 179D tax deduction is based on square footage and actual reduction in energy use determined by specifically approved models and analysis by a third party, licensed and approved engineer or contractor.
The First Step
For a business or property owner or leaseholder the first step is to determine if the building qualifies for a Section 179 expense deduction. In most cases if the building is used for commercial or industrial use it will qualify even if it is a new construction. In addition multifamily dwellings of four or more stories as well as commercial retrofit projects or commercial renovation projects will also be possible candidates.
Government owned buildings can also be qualified for a Section 179 expense deduction with the owner choosing to allocate the deductions to another person involved in the construction or certification process. This may include a contractor, architect, energy consultant or an engineer. This allocation can be discussed with the company you choose to complete your application and certification process.
The Engineering Analysis for a Section 179 Expense Deduction
If your building qualifies the next step will be to have a very specific type of IRS approved engineering analysis and site inspection. This will allow the company to certify that the changes to your building have created the percentage reduction in energy consumption to allow you to obtain the Section 179 expense deduction. Not all professionals are certified by the IRS to complete this analysis and it is essential check that the company you select has this certification.
During this process the building owner or leaseholder can be involved in the actual data collection process and analysis or it can be done entirely by the company providing the certification. Most building owners are involved to some degree, especially if they are transitioning to a full LEED or “green certified” building and what to ensure that the changes they are making will benefit that goal.
Once the data collection and analysis is complete a report is prepared, as set forth by the IRS requirements, and all documentation is completed. You will then review the Section 179 expense deduction report with the certification group and submit your application for the deduction.
