Discover how the 179D deduction is a great incentive for reducing energy costs and increasing profits for manufacturing companies.
By Cameron Collins.
Manufacturing companies that own or lease their buildings stand to gain significantly from the 179D deduction, especially if they have undertaken improvements to their facilities over the past few years. The 179D deduction, also known as the Energy Efficient Commercial Buildings Deduction, allows businesses to recuperate some of the cost of energy-efficient improvements in the form of tax savings. These building improvements include upgrades to lighting systems, HVAC systems, or building envelope components. By investing in these upgrades, manufacturing companies can not only enhance the energy efficiency of their plants but also benefit from substantial tax savings.
HOW CAN MANUFACTURING COMPANIES QUALIFY FOR THE 179D DEDUCTION?
This significant financial incentive encourages businesses to make capital investments that reduce energy consumption. The new version of the 179D Deduction, that came into effect for tax year 2023 as part of the Inflation Reduction Act (IRA), has made it easier for businesses to qualify by lowering the required increase in energy efficiency from 50% to just 25% of the 2007 standards of the American Society of Heating, Refrigeration, and Air-Conditioning Engineers (ASHRAE). This shift aims to broaden participation and drive a larger number of commercial building upgrades, effectively aligning financial incentives with essential environmental goals.
HOW CAN THE 179D DEDUCTION IMPROVE FINANCIALS AND COMPETITIVENESS FOR MANUFACTURING COMPANIES?
The 179D deduction allows building owners to deduct up to $5.36 per square foot in 2023, and up to $5.65 for 2024 for qualifying energy-efficient upgrades, a significant increase from the maximum $1.88 per square foot in 2022. Incorporating the 179D deduction into a company’s tax and financial planning
can lead to significant benefits. Immediate tax savings can free up capital for further investments in technology and process improvements, fostering innovation and competitiveness. Additionally, the long-term energy savings from these upgrades can reduce operating costs, contributing to the overall financial health of the company. By leveraging the 179D deduction, manufacturing companies can not only enhance their facilities but also drive sustainable growth and profitability.
WHY NOW IS THE PERFECT TIME TO EXPLORE THIS OPPORTUNITY?
Manufacturing firms should act swiftly to leverage the 179D Deduction this year. The current qualification requirements are relatively straightforward, but this won’t last—after 2026, energy efficiency standards will tighten under the 2019 ASHRAE guidelines, making it harder to secure the full deduction. Additionally, the deduction amount has nearly tripled for 2023 and 2024, offering a substantial increase in benefits. Another crucial factor is that the Prevailing Wage and Apprenticeship (PW&A) requirements are waived for projects that began before 2023. Future projects will have to meet these requirements to fully capitalize on the deduction.
Claiming the Section 179D deduction involves several essential steps: ensuring compliance with energy savings standards through a neutral third party, conducting energy modeling to verify the improvements, and completing the final technical documentation to substantiate the deduction according to IRS guidelines, which finally includes submitting tax form 7205.
To request an assessment of your 179D Deduction, please contact Cameron Collins at EPSA USA: [email protected] / (832) 685-4433