How to Qualify for the 179D Energy Efficient Tax Deduction for Commercial Buildings

There are some incredible tax incentives available right now for commercial business owners committed to updating and investing in renewable solar energy lighting systems. The 179D commercial buildings energy-efficiency tax deduction provides major savings to business owners and can be combined with the Investment Tax Credit program. Find out what this means for your building project and how to take advantage of these time-sensitive opportunities in 2021!

How Does the 179D Tax Deduction Work?

Did you know that there is a government grant program in place to reduce the cost of new energy-efficient systems in commercial buildings?  The 179D tax deduction is all about reducing the green premium. As part of a key piece of public policy, it is available to commercial companies looking to make a switch to energy-efficient systems. For companies on the fence about making a significant change, this tax deduction program is a game-changer! 

This tax incentive is designated specifically for businesses that upgrade to systems that reduce the building’s total energy and power cost by 50% or more; such as interior lighting, building envelope, heating/cooling ventilation, and hot water systems. So how much money are we talking about? The 179D commercial buildings energy efficiency tax deduction allows commercial business owners to claim a $1.80 per square foot tax deduction (based on the area of the building, not the dollar amount expended) for installing qualifying systems and buildings. 

How to Qualify for the 179D Tax Deduction

Is there anything worse than expecting a big tax break come year-end, only to find out that for one reason or another you didn’t qualify? That can seriously mess with your bottom line! Government grants can be tricky but luckily, qualifying for the 179D tax deduction is not terribly complicated. Just follow these key steps to make sure that your project stays on track and eligible:

1. First, when trying to qualify for the 179D deduction, you need to have a licensed contractor evaluate your building before and after your planned project. You cannot move forward with selecting or installing a system before you complete this step. You should already have a write-up for what your building is spending as far as efficiency goes and you’ll use this as a baseline for energy data. To earn the tax credit you’ll have to prove that your new system reduces the building’s total energy and power cost by 50% or more, and you can’t prove that if you don’t have a data point recorded for the old system’s efficiency. As the building owner, you probably keep a close record of where their money is going, so hopefully, you’ve got utilities records handy.
2. The second crucial step comes after the installation of your new energy-efficient solar lighting system. When the installation is completed, you need the contractor who is licensed in your state to make an evaluation of the new system, what the output is in all the various environmental factors that are around your light, because that’s what’s going to seal the deal and qualify you for the deduction.

179D Tax Deduction Eligibility for New Builds vs. Renovations to Existing Buildings

It is important to consider whether the building is new or existing when determining eligibility for the 179D tax deduction. Here’s the difference and why it matters:

•  If it is a new building and you’re building it out, qualifying for the full deduction is typically very easy because most of the buildings in the United States have highly inefficient systems already. 
• To qualify on a brand new build-out is often a piece of cake. Likely, whoever’s building it for you may have already told you about this tax deduction!
• Older building renovations, on the other hand, require a bit more attention. For example, people that aren’t working side by side with contractors day in and day out may not even know about the 179D or how to optimize the project to qualify for the deduction. 
• The good news is, to put in a new system with a 50% reduction is still very doable in an older building because of the general rule of thumb for lighting.

• If you’re going to go from a fluorescent (which is what you likely have, if you haven’t updated your lights in about the last five to 10 years) to commercial LED lighting made in America, it almost always results in 50% savings in energy usage and spending. It’s a very consistent result!
• If you switch from all fluorescent to LED, you likely won’t even need to worry about qualifying because this is the case. On the off chance that you get your evaluation and if you can’t quite get to 50% from fluorescent to LED, look into solar. This is a reliable plan B because sometimes you can get solar systems for free just because they qualify you for this grant. 
• In rare instances, some buildings are so old that they still have halogen or HID lighting. That means the lights haven’t been updated in 15 to 20 years! But that’s actually very advantageous for you because making the switch from halogen to U.S. manufactured LED light typically results in a 75% reduction in energy usage and costs!

Learn more about how your specific project can qualify for the 179D tax deduction just by converting to the best LED lights for commercial buildings. Bizreps is an official retailer of EnergyBank LED lighting and can help walk you through the process of qualifying in detail. 

What’s the Solar Tax Credit (ITC)?

The 179D energy-efficient commercial buildings federal tax deduction isn’t the only grant program that could save you money on a new clean energy system. The Investment Tax Credit, or ITC, is another government grant that gives the opportunity to save big by investing in solar energy. It is called the ITC because it is the government making an investment in renewable energy sources, such as solar, in commercial buildings across the country. This is truly one of the best solar tax incentives for businesses!

Taking advantage of the Solar Tax Credit is a time-sensitive opportunity. Government grant programs are always changing. Due to the way it was written into law, the ITC will provide generous savings of 26% in 2021 and in 2022. Act fast to claim the greatest possible deduction before funding for this grant decreases in the future.

How to qualify for the Solar Tax Credit:

• You must be the owner of an obvious solar energy system
• The solar energy system must be fully financed by you
• You cannot lease the system
• Power purchase program holders are not eligible
• As long as your system runs on solar energy, it will qualify for the ITC

Obviously, the ITC is worth 26% of the cost of your new solar energy system. However, the unique thing about this tax credit is that it can roll over into previous years. For example, the tax credit on a $20,000 solar energy system would be $5,200. Now, if you owe, say, $5,000 in federal taxes you will still see a $200 savings come next tax season as a result of the ITC. 

The best part? The ITC can be combined with the 179D energy-efficient tax deduction! No, believe it or not, that’s not cheating. Talk to a Bizreps team member today to learn more about how you can act now to stack these savings!

What if I’ve already made major updates? How do I even file? It’s very, very simple to file for the179D energy-efficient commercial buildings federal tax deduction and solar ITC. Too many business owners skip filing for these amazing savings because they wrongly assume that filing will be more trouble than it’s worth. But a little paperwork could save you upwards of $30,000!

Your tax software or your tax guy can do this for you easily. It’s a line item, very straightforward. Along with your tax forms, you submit the report from your licensed contractor, with the existing, over to the new and it all gets filed under ‘other deductions’. And just like that, you qualify! 

USA-Made LED Conversion Lighting and ROI

There are many energy-efficient systems that will qualify you for the 179D tax deduction, but we are a fan of solar-powered LED lighting because of the amazing ROI. Here’s an example of the 179D in action:

The average size of a warehouse is 16,400 feet. If you replace the lighting system in your 16,000-foot warehouse, which is average, at $1.80 per square foot, that’s a $29,000 tax deduction. Rounded down for an easy number, $29,000 is what you’d get just for replacing the lighting system in your building with something more efficient.

What’s the Best LED Lighting System in 2021?

Our top pick for the best LED light for warehouse and commercial buildings is the Energy Bank FUSION system. The 2021 Energy-Efficiency Lighting Guide for Businesses and Building Owners gives information on all the newest U.S. LED lighting, but in our opinion, FUSION is by far the best solar-powered LED lighting on the market right now. The FUSION system has both commercial and industrial applications, from office troffers to production area high bays. 

Its efficiency outranks any other LED office lighting. Utilizing both AC and DC power, FUSION LED systems can provide all or a majority of light from solar panels when electricity costs are at their highest and the system’s Genius IoT controller gives you complete control over your lighting system at all times.

Traditional grid systems for solar power can be expensive to install and maintain and actually lose lots of power during transfer. FUSION eliminates all of the expensive, high-maintenance, and inefficient equipment and processes required for a traditional grid-connected system and makes the most effective use of the solar energy harnessed. If you are serious about qualifying for a government tax credit with a new energy-efficient lighting system, this is the way to go!

Ready to maximize your tax deductions? Contact my team at bizreps.ca/schedule! We work with companies that are ready to take the next step into better lighting, more efficient lighting that’s going to save money and qualify you for grants like the 179D commercial reduction and the solar ITC. There are so many more grants and federal programs involved with solar and utility rebates that we can consult with you on as well.

This guide will help you:

• Know what legislation may be on the horizon that could affect commercial lighting in 2021 and beyond.
• Understand the potential ROI of your lighting
• Explore some of the top tax rebates and incentives available to help reduce, if not fully eliminate your material and installation costs.
• And so much more!