Claim Commercial Building Energy Tax Credits for Efficiency Upgrades

Since 2006, the 179D Energy-Efficient Commercial Buildings Tax Deduction has been in existence, and it was made a permanent benefit through the Consolidated Appropriations Act of 2021. This tax deduction, part of Commercial Building Energy Tax Credits, serves as a significant incentive for commercial property developers and owners, offering them the opportunity to qualify for a federal tax credit of $1.88 per square foot, or a partial tax credit of up to $0.63 per square foot.

Federal Programs

The federal government provides tax credits for acquiring specific energy-efficient products and renewable energy systems. Additionally, there are additional tax incentives available for businesses, utilities, and government agencies.

Energy Efficiency Certification and Licensing

The Public Utility Commission of Texas (PUCT) established the Renewable Energy Credit (REC) trading program to promote the development of renewable energy within the state. The program’s initial goal was to add 2,000 megawatts (MW) of new renewable energy capacity by 2009, with an extended target of 10,000 MW by 2025. This initiative also aimed to provide customers with access to energy providers utilizing renewable energy resources.

To be eligible for RECs, a generator must be a new facility or a small producer, as defined in PUCT Substantive Rule §25.173(c), and must meet the requirements outlined in §25.173.

However, certain facilities are not eligible for producing RECs, including:

• Renewable energy capacity additions associated with emissions reductions projects used to fulfill permit requirements in Health and Safety Code §382.0519.
• Existing facilities that are not classified as small producers.
• Existing fossil plants that have been repowered to use renewable fuel.

These eligibility criteria ensure that RECs are awarded to facilities contributing to new renewable energy capacity, thereby supporting Texas’s renewable energy goals.

Consumer Energy Efficiency Tax Credits

To be eligible for the 179D tax credit, building owners must achieve a minimum of 50% energy savings compared to the performance level required by the ASHRAE Standard 90.1. These energy savings must be accomplished through a combination of efficient measures in four crucial areas: lighting, building envelope, HVAC systems, and hot water systems.

Claiming the energy efficiency tax credit for a building involves two essential criteria. First, the savings must be measured in accordance with the most recent edition of ASHRAE 90.1 Second, they must be validated using IRS-approved energy modeling software; the US Department of Energy has provided a list of approved options, including DesignBuilder, DeST, DOE-2.2, EnergyGauge, EnergyPlus, eQuest, Hourly Analysis Program (HAP), IES Virtual Environment, OpenStudio with EnergyPlus, TAS, TRACE 3D Plus, TRACE 700, and TRNSYS.

This tax credit is applicable to both newly constructed and existing buildings, and typically, it is the building owner who claims the deduction. However, in cases where tenants bear the expenses of energy upgrades, they may also be eligible to qualify for the tax credit.

Who should file: A generator that is a new facility or a small producer as defined in Substantive Rule 25.173(c) and that meets the requirements of 25.173 who would like to earn RECs.

When to File: 30 days before beginning operations in this state.

#Pro Tip: To get tax credits for energy efficiency in commercial buildings, focus on indoor lighting, building envelope, HVAC, and water heating improvements. Achieve at least 50% energy savings compared to ASHRAE 90.1 standards, validated with approved energy modeling software. This qualifies for the 179D tax credit of up to $1.88 per square foot.

Building upgrades Eligible for Energy Efficiency Tax Credit

The 179D tax credit is centered around four key areas: indoor lighting efficiency, building envelope performance, HVAC efficiency, and water heating efficiency. When a building achieves a minimum of 50% savings through a combination of energy upgrades in these areas, it becomes eligible for a tax deduction of $1.88 per square foot. The Database of State Incentives for Renewables and Efficiency (DSIRE) offers a comprehensive list of the main technologies and upgrades that are covered by this tax credit.

Maximizing Savings with Commercial Building Energy Tax Credits

Investing in energy-efficient upgrades is not only beneficial for sustainability but also a smart financial decision. With Commercial Building Energy Tax Credits, businesses can reduce project costs while significantly lowering long-term energy expenses.

Financial and Tax Benefits

The 179D Energy-Efficient Commercial Buildings Tax Deduction, a key part of Commercial Building Energy Tax Credits, allows businesses to claim up to $1.88 per square foot in tax deductions. This benefit offsets the cost of implementing energy-saving systems, including:

• LED lighting installations
• HVAC upgrades
• High-performance insulation and roofing

Beyond direct tax savings, these improvements lead to lower electricity bills, reduced maintenance costs, and increased property value, making energy efficiency a high-return investment.

Eligibility and Compliance Requirements

To qualify for Commercial Building Energy Tax Credits, businesses must ensure compliance with:

• Energy reduction thresholds as defined by the Department of Energy.
• Third-party certification to verify energy efficiency improvements.
• Eligible property types, including office buildings, warehouses, retail spaces, and multifamily units.

Future of Energy Tax Incentives

With increasing emphasis on sustainability and clean energy, federal policies continue to evolve, expanding tax incentives for energy-efficient projects. Businesses that leverage these incentives early gain not only financial benefits but also a competitive advantage in an eco-conscious market.

By utilizing Commercial Building Energy Tax Credits, businesses can reduce costs, increase efficiency, and support long-term sustainability—all while improving their bottom line.

Conclusion

The continued promotion of renewable energy credits and tax incentives for energy-efficient products and renewable energy systems plays a vital role in driving the transition towards cleaner and more sustainable energy sources. As individuals, businesses, and government agencies take advantage of these incentives, including Commercial Building Energy Tax Credits, they contribute to a collective effort to reduce carbon emissions and combat climate change.

By supporting and adopting renewable energy initiatives, Texas is leading the way towards a more environmentally conscious and economically robust future. Embracing renewable energy technologies and leveraging Commercial Building Energy Tax Credits not only helps protect the environment but also creates new opportunities for job growth and innovation in the clean energy sector.

References

• https://smarterhouse.org/resources/federal-tax-incentives

FAQs: How to Get Tax Credits for Energy Efficiency in Commercial Buildings