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By: Catherine Bednar
While many individuals and businesses are currently focused on the upcoming deadlines for filing their 2019 tax returns, it is also an ideal time to consider potential tax benefits for 2020 construction projects. Those in the construction industry seeking to take advantage of available tax incentives should keep up-to-date on developments in the tax code, including key changes in 2020 for two energy-related tax features.
Energy Efficient Commercial Building Deduction: As part of a spending bill intended to fund the federal government through 2020 and signed into law on December 20, 2019, Congress revived the Energy Efficient Commercial Building Deduction (179D) which had previously expired on December 31, 2017 and extended this benefit through December 31, 2020. The 179D deduction allows taxpayers to claim a deduction of up to $1.80 per square foot for installing qualifying systems and buildings. The deduction is available to building owners and tenants who make construction expenditures prior to the deadline. In cases of improvements to government buildings, the designer of the system may be eligible to claim the deduction. In order to qualify for the full deduction, the project must reduce the building’s energy costs by at least 50%. The deduction applies to new and existing buildings which install energy-efficient lighting, building envelope, HVAC or hot water systems.
Solar Investment Tax Credit: This credit was established by the Energy Policy Act in 2005. The credit was initially slated to expire in 2007, but was extended multiple times. Currently, the credit is available to both residential and business owners; however, the benefit is being phased out for residential owners and permanently reduced for commercial owners. There is no cap on the total value of the credit, which allows a deduction for a specified percentage of the installation cost for a solar energy system. Between 2016 and 2019, the tax credit remained at 30% of the installation cost. In 2020, however, the benefit was reduced to a 26% deduction for 2020 for both residential and commercial solar investments, and in 2021 the deduction will drop to 22%. Beginning in 2022, the deduction will only be available to commercial owners and will remain at 10% of the installation cost.
Note: Individual and corporate taxpayers should consult with their accountant or tax attorney to determine eligibility for any tax incentives based on the specific circumstances.
If you have questions or would like more information, please contact Catherine Bednar at [email protected].