Internal Revenue Code Section 179D

Energy-Efficient Tax Deduction

Nonprofits can now benefit from tax deductions if they install energy-efficient equipment in new or renovated buildings that they own.  Starting in 2023, Internal Revenue Code Section 179D provides a tax incentive to those who build or renovate energy-efficient buildings. 

The Code Section 179D incentive can now be taken on a specific commercial building every 3 years. Previously, the deduction was permitted once over the life of the building.  Nonprofits don't usually get to benefit from tax credits and deductions being tax exempt organizations. 

The Section 179D deductions give tax incentives to those who build or renovate energy-efficient buildings. The tax deduction is initiated if building design improvements such as heating, lighting, HVAC, hot water, or the building envelope (roof, walls, windows) result in efficiency of a minimum of 25 percent. 

For nonprofits, the Code Section 179D deduction is imparted through an “Allocation Letter” to a taxpaying entity (e.g. the architect or engineer) who then claims the tax deduction in exchange for adjusting the overall costs of the construction project and provide ongoing savings in costs such as water, heat and electricity. 

Nonprofits planning a construction project or structural improvements should consider incorporating sustainable elements as they can translate into savings. Energy-efficient facilities may also align with an organization's mission and values of being environmentally conscious.

Click here to read the full article from the National Council of Nonprofits