leedDo you know the difference between LEED certification and ASHRAE standards?

Leadership in Energy and Environmental Design (LEED) and the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) are two organizations leading the rating systems and standards for energy-efficient buildings.

While both rating systems are working to reduce energy consumption and modernize environmental standards, there are significant differences between the two:

  • The LEED rating system offers certification levels for new structures that go above and beyond in green design.
  • The ASHRAE Standard 90.1 is an energy specification that dictates the minimum requirements for any structure (new or existing) that does not include low-rise residential buildings.

LEED was developed in 1999 by the U.S. Green Building Council. When a building is seeking a LEED certification, it is rated by the Green Building Certification Institute on a point scale in seven categories. These categories are water efficiency, innovation in design, regional priority, materials and resources, sustainable sites, indoor environmental quality, and energy and atmosphere. The building can receive a certified, silver, gold or platinum rating.

Although the ASHRAE standard has been updated frequently since its inception, buildings are still being compared to the benchmarks put in place in 2001 (referred to as ASHRAE 90.1.(2001)) to qualify for the Energy Efficient Commercial Building Deduction (179D). This version of ASHRAE defines energy efficiency standards in three categories:  interior lighting, HVAC and hot water, or building envelope systems.

Tax Savings With LEED and ASHRAE

To incentivize energy-conscious construction and to offset buildings using 60-70% of the U.S.’s power consumption, 179D was included in Congress’ Energy Policy Act of 2005. Overseen by the IRS, this deduction was put in place to help make the U.S. an energy-independent nation.

To qualify for the 179D deduction, businesses must meet the minimum requirements of the ASHRAE standard. A building has to demonstrate a 50% reduction in one or in a combination of the three categories defined by the 179D code. The deduction can also be partial if the 50% is not met (with certain specifications).

Both LEED and ASHRAE 90.1.(2001) are modeled using a Performance Rating Method (PRM). While 179D looks at a modified PRM and can look at parts of the building independently, LEED certification requires that the entire building’s PRM is measured.

Of the seven categories by which LEED standards are measured, the two most important categories in terms of qualifying for 179D are energy, and atmosphere and indoor air quality. A prerequisite for LEED certification in energy and atmosphere is that the building exceeds the standards of the ASHRAE 90.1 (2007) rating, which is more complex than the 2001 standard that is required to qualify for the 179D deduction.

While a building does NOT have to be LEED certified to qualify for the 179D tax deduction, if a building has qualified in energy and atmosphere for LEED certification, it is in a great position to qualify for the 179D deduction.

Is your building in compliance with ASHRAE standards, or qualified for LEED certification? If so, you likely have a very big head start on claiming valuable tax incentives. For architects, engineers and construction companies, this credit is available for your work on government-owned building. These include public schools and universities, military buildings, court houses, libraries, county hospitals and local libraries. But, in order to claim the deduction, the government entity must make an official allocation to one of the contractors involved in designing the building. By offering a very lucrative deduction to the designers, 179D is incentivizing energy efficient design and construction that helps promote US energy independence and security.

alliantgroup is the nation’s leading provider of specialty tax consulting services including the Energy-Efficient Commercial Building Deduction (179D) and the Research and Development Tax Credit. Contact us today to learn how your work on energy efficient and LEED certified buildings may qualify you for lucrative tax incentives and credits.