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began before January 29, 2023. Future projects will need to meet these requirements to maximize the deduction benefits. ■ Energy efficiency standards. The qualification criteria for energy efficiency improvements are currently based on the 2007 ASHRAE standards, which are relatively easy to meet for new construction and renovations. However, after the 2026 tax year, the standards will shift to the 2019 ASHRAE guidelines, making it more challenging to qualify for the full deduction amount. Claiming the section 179D deduction involves several key steps. First, businesses need to identify eligible projects with qualifying improvements that meet the deduction criteria. Next, they must obtain necessary certifications from qualified professionals to confirm compliance with energy savings standards. Additionally, businesses must gather documentation demonstrating compliance and report it to tax form 7205. Rachel Lindblade is a technical manager in the A&E division of EPSA USA. Contact her at rlindblade@epsa.com.
RACHEL LINDBLADE, from page 11
a significant increase from the maximum $1.88 per square foot in 2022. This significant financial incentive encourages businesses to make capital investments that reduce energy consumption. Notably, the IRA has made it easier for businesses to qualify by lowering the required increase in energy efficiency from 50 percent to just 25 percent of the 2007 standards of the American Society of Heating, Refrigeration, and Air-Conditioning Engineers. This shift aims to broaden participation and drive a larger number of commercial building upgrades, effectively aligning financial incentives with essential environmental goals. Furthermore, the deduction’s structure facilitates immediate tax savings, which is increasingly vital as businesses face rising operational costs and fluctuating energy prices. By offsetting the initial costs of adopting energy-efficient technologies, the section 179D deduction plays a crucial role in supporting businesses in their quest for sustainability while also contributing to a greener economy. HOW CAN AEC FIRMS BENEFIT FROM THE 179D DEDUCTION? AEC firms stand to gain significantly from the section 179D deduction, particularly when involved in the design and construction of energy-efficient buildings. Notably, the revised legislation allows tax-exempt entities (government, higher education, K-12, religious, non-profits, etc.) to allocate the deduction to the primary designer responsible for energy- efficient improvements, unlocking previously inaccessible benefits to architecture and engineering firms. For-profit building owners who invest in qualifying energy- efficient upgrades can also claim the deduction, provided they meet specific criteria. The financial implications can be substantial. This tax incentive not only supports the immediate economic health of firms but also enhances their competitive edge in the growing market for sustainable building solutions. By integrating energy-efficient designs into their projects, firms can not only improve their bottom line but also demonstrate a commitment to sustainability. This proactive approach can attract environmentally conscious clients, further differentiating these firms in a competitive landscape. WHY IS NOW THE RIGHT TIME TO EXPLORE THIS OPPORTUNITY? With building owners and organizations facing increasing operational and construction costs and spikes in taxes due to 174 amortization requirements, AEC firms should strongly consider the 179D deduction this year. Here are key points to note: ■ Increased deduction amount. The deduction amount has nearly tripled for 2023 and 2024 compared to previous years. Smaller projects, previously deemed not worth the effort, should now be reconsidered for this deduction. could allocate this deduction. Now, in 2023 and 2024, nonprofit organizations can also benefit. This expansion allows AEC firms to leverage the deduction for a wider range of projects, including schools, higher education institutions, religious institutions, and affordable housing. ■ Expanded eligibility. Previously, only government buildings ■ Waived PW&A requirements. Prevailing Wage and Apprenticeship requirements are waived for projects that
THE ZWEIG LETTER OCTOBER 28, 2024, ISSUE 1559
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