Understand the Section 179 Tax Deduction

by | Apr 8, 2014 | Financial System

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The government has devised key incentives for tax purposes over the past few years that are focused on inspiring many businesses to build energy efficient structures. The Section 179 tax deduction credit is an incentive that directly relates to the construction and design of an energy efficient building. There are many tax payers that do not even realize this tax credit exists. Originally it was intended to counterbalance the cost of including energy efficient improvements within commercial buildings.

Enjoy the Immediate Expense

Normally this type of deduction could take up to thirty-nine years to depreciate. Instead the Section 179 tax deduction allows a tax payer to utilize an immediate expense that covers the entire cost within one tax year, instead of being depreciated. In order to use the Section 179D tax deduction by IRC  you must qualify by proving that your total annual power and energy costs are reduced with respect to ventilation, hot water systems, interior lighting systems, and heating and cooling, by fifty percent. Partial deductions are permitted, as well. The overall idea is that energy simulation is a requirement in order to justify the deduction. You will need to contact a professional engineering firm to provide proof of inspection and testing. Keep in mind the engineering firm you use must be qualified within the jurisdiction where the commercial building is located.

What to Expect from a Licensed Engineering Firm

The process begins by contacting a licensed engineering firm and starting the qualifying process. You will be asked to provide minimal information concerning the energy efficiency of the property in which you are trying to apply the tax credit. Once the building has been pre-qualified, then you will be asked to agree to a study contract for energy certification. Next the engineering firm will commence with a site inspection and engineering analysis that is required by the IRS. Section 179D  requires certain documentation that will be used for analysis that satisfies all of the I.R.C. requirements. You will be provided with the final report once the engineering team has finished their job. Usually this report comes as an electronic copy which makes it easier for it to be reviewed by a tax professional to ensure accuracy. Once the final report is approved, it is signed and a hard and electronic copy is sent to you.

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