In the realm of energy incentives and tax benefits, Section §179D offers a valuable opportunity for commercial real estate clients to reduce their taxable income and bolster their cash flow. However, to take full advantage of this provision, it is crucial to stay well-informed about the current rules, rates, regulations, and its scope of applicability.

A key aspect of the ongoing deliberations on tax and spending legislation is the "Build Back Better Act" (BBBA), which encompasses an extensive array of investments and incentives aimed at upgrading residential and commercial buildings. The proposed bill includes provisions supporting electric vehicles, energy storage, renewable energy sources, and advancements in the electric grid infrastructure.

Although the $1.7 trillion BBBA has faced extensive debates, there remains a possibility that it could be passed before the year's end, especially with the extension of the debt ceiling issue until February 2022. While disagreements within the Democratic caucus have caused some delays, they are not insurmountable obstacles.

During discussions at the recent Kentucky Society of CPAs annual Commercial Real Estate Conference, it was revealed that the Ways and Means Committee's proposed bill intends to modernize and revamp the existing incentives for energy efficiency improvements in buildings. Under this bill, the Sec. §179D incentive for energy-efficient buildings would see a substantial increase starting in 2022, with incentive levels rising from the current $1.80 per square foot for efficiency improvements to a sliding scale of $2.50 to $5.00 per square foot. Additionally, the bill aims to replace the lifetime maximum with a three-year cap, and the changes would be effective until December 31, 2031.

Furthermore, the bill proposes a new framework to make the deduction more accessible for retrofitting existing buildings. This framework would include an inflation adjustment for 2022 and open up the so-called "designer allocation" to all tax-exempt entities, including Indian tribal governments.

For those engaged in commercial real estate with energy-efficient buildings, this fact pattern offers significant tax-saving opportunities. However, to capitalize on these incentives effectively, professionals must be well-versed in the specifics of the legislation and know where to direct their focus. Notably, primary designers of energy-efficient buildings may discover new opportunities for collaboration with not-for-profit organizations as a result of the proposed legislation.


In the realm of commercial real estate, navigating the complexities of energy incentives can be overwhelming, regardless of whether you cater to numerous clients or are new to the field. To ensure that tax incentives are maximized, it is imperative that the energy design is accurately incorporated from the outset. Just like constructing a sound financial stack, the design plays a crucial role in claiming lucrative tax incentives.

Our recommendation is a team-oriented approach to support your commercial real estate clients in optimizing savings and bolstering cash flow as they transition towards energy-efficient buildings. Recognizing the enormity of this task, relying solely on an individual professional might not suffice. A well-rounded team should involve an independent party to aid in the design review and certify the property's energy efficiency performance.


To kickstart discussions with your CRE clients, it is beneficial to map out several key points that can guide them toward their energy efficiency goals:

  • Build a strong business case to support the investment in energy efficiency.
  • Initiate energy planning at the project's conceptual stage to maximize benefits.
  • Be aware of varying enactment periods and qualifying criteria.
  • Consider each client's unique tax structure and ability to absorb deductions.
  • Explain the convergence of opportunities and integration of approaches for optimal results.
  • Simplify the process with a turnkey solution to alleviate confusion.
  • Leverage industry experts, products, and performance to enhance outcomes.
  • Highlight the robustness of audit defense and warranty for added assurance.
  • Emphasize that you have a dedicated team advocating for the client's needs and requirements.

To optimize the client's cash flow, assume the role of the expert team's quarterback. Explore possibilities within the existing legislation. The §179D tax deduction incentivizes building owners and design firms to adopt energy-efficient systems, curbing their carbon footprint. With energy costs escalating, this becomes a crucial focus for both public and private organizations.


If you have invested in making your commercial buildings energy-efficient, you have the opportunity to deduct a significant portion or even all of the costs associated with the construction, installation, or retrofitting. This deduction can result in considerable savings for your business while also contributing to a greener future.


For design firms involved in energy-efficient commercial building projects situated on government-owned property, whether federal, state, local or a political subdivision, there's a special incentive. The government entity that owns the property can allocate the §179D deduction to the primary building designer. This creates a win-win situation, encouraging both energy efficiency and innovative design.

Identifying Eligible Buildings:

The scope of eligibility for EPACT §179D tax deductions is broad and includes various commercial property types such as apartments (4 stories or higher), auto dealerships, hotels, manufacturing facilities, offices, parking garages, shopping centers, and warehouses. Additionally, specific government buildings like courthouses, government offices, libraries, post offices, schools, state universities, and recreational buildings qualify as well.

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Which Industries Qualify?

The R&D tax credit can be applied to a wide variety of industries, including (but not limited to):


Tool & Die

Metal Fabrication

Plastics & Injection Molding

Consumer Products


Architecture & Engineering

Food & Beverage

Financial Services

Mortgage & Banking

Software Development


Contract Manufacturing

Construction / MEP


Oil & Gas

EPACT §179D Eligibility Criteria

To be fully eligible for the §179D tax deduction, buildings must demonstrate a reduction of 50% or more in total energy and power costs compared to a reference building. Meeting this criterion can result in a generous tax deduction of $1.80 per square foot, making it a substantial financial benefit for your clients


A common question from our clients revolves around the eligibility for §179D tax credits when a lighting retrofit is part of the project scope, or when qualifying for a partial deduction through energy modeling seems difficult. The answer is affirmative: Interim lighting can often serve as a viable alternative to meet the requirements. Let's explore how this can be achieved.

The process begins by conducting a Lighting Power Density (LPD) calculation, which measures the number of watts per square foot of lighting. This LPD value is then compared to an ASHRAE reference building. By achieving a 25% to 40% reduction in LPD through effective lighting measures (equivalent to a $0.30 to $0.60 tax deduction), clients become eligible for the §179D credit. It is crucial, however, to incorporate bi-level switching and automatic controls into the lighting setup.


There are three proven methods to implement the §179D tax deduction:

  • Ordinary Deduction: Entities subject to federal income tax can take advantage of this deduction.
  • Pass-Through Entities: Businesses structured as pass-through entities can benefit from the EPAct §179D tax deduction up to the amount of shareholder basis.
  • Excess Basis Deduction: Deductions exceeding the basis can also be utilized, albeit at a reduced amount.

Worth noting is the possibility for design firms to amend their returns from the past three tax years to claim the EPAct §179D deduction. This could potentially lead to a refund, making the deduction even more appealing.


To qualify for the §179D credits, projects must meet the following criteria:

  • Project Types: The deduction applies to new construction, renovations, and additions.
  • Design Responsibility: Projects, where your clients' firms bear primary responsibility for the design, are eligible for the deduction.


Energy audits are comprehensive evaluations of a building's systems, including HVAC, lighting, and process equipment. Unlike typical maintenance activities, energy audits focus on optimizing efficiency rather than just making things operational. Engaging a qualified auditor with expertise in equipment specifications and energy reduction impact is crucial. A professional engineer with knowledge of various building components is an ideal choice for this role.

Reasons to Encourage Energy Audits for Real Estate Clients:

  • Energy audits help maintain optimal thermal comfort, thereby maximizing the well-being and productivity of the building's occupants.
  • By identifying areas of energy loss and recommending improvements, energy audits help minimize energy wastage and maximize efficiency.
  • Conducting an energy audit can provide valuable insights into a building's overall value, taking into account its energy efficiency and potential for cost savings.
  • Energy regulations and guidelines often change rapidly. Energy audits ensure that buildings remain compliant with the latest government standards.
  • The results of an energy audit are instrumental in determining and prioritizing energy conservation measures that can lead to significant cost savings.

Understanding the Three Levels of Energy Audits:

There are three proven methods to implement the §179D tax deduction:

ASHRAE Level 1 - Preliminary Audit/Walk-Through Analysis:

This basic audit involves site inspection, utility bill review, and prioritization of energy efficiency projects. It offers an initial understanding of the building's energy performance and areas requiring further investigation

ASHRAE Level 2 - Energy Survey and Analysis:

In this stage, detailed energy calculations and life cycle cost analysis are performed, along with financial assessments of potential energy efficiency measures. Sufficient data is gathered to justify project implementation

ASHRAE Level 3 - Detailed Analysis of Capital-Intensive Modifications:

Building upon Level 2, this audit focuses on capital-intensive projects and provides highly accurate cost and savings calculations. Detailed field analysis and engineering calculations are conducted for projects requiring substantial investments.


For clients with low-income housing properties, understanding utility allowances is essential:

  • Utility allowances are payments from housing authorities that cover utility bills for low-income residents.
  • They are usually excluded from gross rents and are based on assistance from organizations like Rural Housing or HUD.
  • Energy Consumption Models from licensed engineers can be used for other tenants to determine utility estimates, preventing overcharging and allowing for rent adjustments.


Efficient energy management is a critical aspect of any building's operation. Encouraging energy audits and working with a qualified team can lead to significant cost savings and increased building value. Utilizing tax incentives for energy upgrades further enhances the financial benefits. By prioritizing energy efficiency, real estate professionals can effectively drive down operating costs and provide long-term value to their clients.


Deb Roth
August 14, 2023

Maximizing Cash Flow Through Government Tax Opportunities

Amid the ongoing challenges posed by COVID-19, numerous small and midsize businesses are grappling with maintaining cash flow, operational capabilities, and their internal research and development initiatives. While the Coronavirus Aid, Relief, and Economic Security (CARES) Act did extend financial aid to these COVID-19-affected enterprises through emergency grants, retention tax credits, and forgivable loans, these solutions offer only temporary cash flow relief, falling short of providing lasting solutions.

Deb Roth
August 14, 2023

Understanding the R&D Tax Credit Carryforward Period

The R&D Tax Credit Carryforward Period refers to the duration during which unused portions of research tax credits can be applied to offset future tax liabilities. This provision is often overlooked by many taxpayers who are eligible for R&D Tax Credits. In most cases, companies that have qualified research expenses but lack current income can carry forward these credits to offset taxes on forthcoming profits. The carryforward period allows credits to remain applicable for up to 20 years. Additionally, the option to carry back credits for the previous year is also available.

Deb Roth
August 14, 2023

Are R&D Tax Credits Convertible to Cash?

Navigating the world of R&D Tax Credits often prompts the question: Can these credits be converted into cash refunds? It's a query frequently posed by businesses seeking to maximize their returns on research and development investments. While R&D Tax Credits themselves aren't inherently refundable, they can still yield a financial windfall in the form of cash benefits.

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