On August 8, 2005, President George W. Bush signed the Energy Policy Act of 2005, which included many energy policy provisions and initiatives focused on reducing our carbon footprint and enhancing our Nation’s energy independence. Many of the initiatives focus on the source of energy – including loan guarantees for innovative technologies that avoid greenhouse gases, subsidies for alternative energy providers and provisions aimed at making geothermal energy more competitive. As part of the Act, Congress also commissioned a study to better understand energy consumption in the United States, and the results were eye-opening. They found that more than 60% of our nation’s energy was consumed in commercial buildings, and the results of the study lead to the creation of a special financial incentive that is known as the Energy Efficient Commercial Building Deduction (the “EECBD”).

The EECBD is found under Section §179D of the Internal Revenue Code. Its initial intent was to reduce the financial burden on commercial building owners that made investments in energy efficient property that was designed significantly reduce the building’s energy costs related to its HVAC, Interior Lighting and Building Envelope systems. 179D allows Commercial Property Owners to claim a Federal Tax Deduction of up to $1.80 per square foot for the energy efficient improvements in qualified buildings that achieve energy savings in excess of 50% when compared against a baseline building. Partial deductions of $0.60 per square foot can also be claimed for individual systems achieving lesser savings benchmarks.

In its original form, the 179D incentive only included property owners. However, in an effort to bolster the struggling AEC (Architecture, Engineering and Construction) construction industry, on April 7, 2008, the IRS published Notice 2008-40, which set forth the Special Rule for Government-Owned Buildings. This “special rule” allows for the allocation of the 179D incentive from government entity property owners to qualified architects, engineers, or contractors that perform work on government-owned buildings such as K-12 schools, public universities, courthouses, military buildings, airports, city halls, and public safety centers.

A huge success, the 179D legislation has done wonders by reducing our nation’s carbon footprint by incentivizing the design of “greener” government buildings. Equally important is the fact it has created thousands of American jobs by infusing federal tax dollars into the AEC industry.

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