Tax Deductions: Application of §179D for Hotel Properties

By Marky Moore Founder, Capital Review Group | August 19, 2012

In today's economy, saving on operating costs has become an essential goal for hotel property owners. Many hotel owners are looking to integrate sustainability into construction or retrofitting existing properties to save on energy usage and costs. If planned and executed properly, energy efficient construction or modifications can not only save on operating costs, but may result in significant tax savings.

The Energy Policy Act of 2005 - known as §179D - includes a tax deduction for investments in "energy-efficient commercial building property" designed to measurably reduce the heating, cooling, water heating, and interior lighting energy cost of new or existing commercial buildings. This energy-efficient commercial building property must be placed into service between January 1, 2006 and December 31, 2013.

If you are a building owner or a tenant/lessee who has paid for energy efficient construction or improvement projects, you may be eligible for a tax deduction of up to $1.80 per square foot for improving the energy efficiency of your existing commercial building or designing and integrating high efficiency into new buildings. (Interestingly, for government owned buildings, the person primarily responsible for designing the building or project may be able to claim the deduction.)

To qualify for the full deduction (whole building), a hotel owner/building owner (or tenant) must make investments designed to reduce energy costs by 50% or more compared to an IRS predetermined baseline. Additionally, a partial deduction of $.60 per square foot is provided for building subsystems such as lighting, HVAC, hot water and building envelope. In order to qualify for the deduction, the taxpayer must receive a qualified third party energy efficiency certification.

Whole Building Design

Whole-building (integrated) design is a growing trend in green building that embraces the "big picture". This method of building or making improvements analyzes the way a building's systems complement and work together, rather than segregating components to make improvements individually. Whole-building design results in a more efficient design that maximizes energy efficiency and minimizes the building's impact on its environment. Whole-building integration is also a way to incorporate improvements to all facility subsystems that may allow the property to qualify for the full §179D deduction.

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