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IRS Modifies Energy Reduction Thresholds for 179D Deductions

On February 24, 2012, the IRS issued Notice 2012-22 which modifies the thresholds for various building component energy efficiencies in support of the § 179D deduction pursuant to EPAct 2005.

By way of reference, tax payers may be entitled to a deduction of up to $1.80 per square foot if certain energy savings are realized.  The calculations for the deductions are based on lighting, HVAC and building envelope performance standards with the related deductions available for newly constructed or renovated properties.  While these incentives have been around since 2005, there have been a couple of modifications over the years.

Traditionally, it has been relatively easy to meet the standards for lighting. It has been more difficult now however, to meet the qualifying thresholds for HVAC and building envelope. IRS Notice 2012-22 now reduces the thresholds for HVAC and building envelope, making it perhaps a bit easier to qualify for deductions associated with these elements.  While the adjustment in the thresholds requires for lighting to “pick up the slack”, we feel that ongoing advancements in lighting technology will easily enable taxpayers to still meet the lighting thresholds and create a better chance of meeting the other two thresholds.

As with everything in the tax world, the actual strategy and ensuing results will be based on “facts and circumstances”. If you or your clients have recently constructed or renovated a facility, it may make sense to determine if you could benefit from a study to enable you to take advantage of this valuable tax deduction.

For more information, please contact your local Bedford representative.