In February, the IRS published new Form 7205, which will be required for any building owners or designers claiming the energy efficient commercial buildings deduction (Section 179D) in 2022 and forward. With the introduction of Form 7205, new information must be attached to the return, including:
- The energy savings percentage for each qualifying system (HVAC & hot water, interior lighting, building envelope, or all systems).
- The deduction rate claimed in prior years.
- The cost of the energy efficient commercial building property (EECBP).
- The qualified individual who completed the certification for the deduction.
- The building owner’s authorized representative who executed the allocation letter (in the case of a qualified designer).
How to Ensure You Are Correctly Filing the Section 179D Deduction in 2022
As a taxpayer claiming the Section 179D deduction, it is important that Form 7205 is correctly filled out and attached to the 2022 tax year return. To ensure compliance, a taxpayer should do the following:
- Check in with your 179D Provider & CPA: Confirm both your 179D provider and CPA know of Form 7205 and will be including it with your 2022 tax return. If needed, reach out to an experienced CPA firm for assistance.
- Obtain Study Documentation: Have your 179D provider or CPA send you the following for all properties that will be listed on Form 7205:
- Qualified systems, energy savings percentages, and deduction amounts
- Signed certifications
- Executed allocation letters
- Copies of notices sent to government building owners. This is required if the original allocation letter did not include the finalized deduction amount, energy efficient features, and projected annual energy costs of the building.
Due to the Section 179D changes made in the Inflation Reduction Act, the current Form 7205 will only be applicable to properties placed into service in 2022 or prior years. The IRS has indicated a new Form 7205 will be issued later this year for the tax year 2023. The new form should reflect the new energy savings calculation method and prevailing wage & apprenticeship requirements. If you are a taxpayer with an upcoming short year in 2023 and the new form has not yet been released, the current Form 7205 can be used with an attached statement showing the calculation of the deduction.
Background
The Section 179D deduction is a valuable tax incentive available for the installation of energy-efficient systems in commercial and high-rise residential buildings. For new construction or renovation projects, a taxpayer can receive up to $5 per square foot for the installation of HVAC and hot water, interior lighting, and/or building envelope systems. The Section 179D deduction is available to commercial building owners as well as architects, engineers, contractors, and other companies that perform work on buildings owned by the government or tax-exempt entities.
Calvetti Ferguson has a team of CPAs and Professional Engineers with extensive experience delivering Section 179D and other valuable tax incentives. Our team has the expertise to complete all requirements of a high-quality Section 179D study. If you are interested to learn more about Section 179D or need assistance with Form 7205, please complete the form below, and a member of our team will follow up shortly.
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