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How a $250M+ Commercial Real Estate Firm Secured $2.2M with Section 179D: A Case Study

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When a $250M+ commercial real estate firm set out to upgrade its buildings with energy-efficient improvements, they saw an opportunity to unlock valuable tax deductions through Section 179D. However, navigating the intricate web of energy standards, labor compliance rules and certification requirements quickly became overwhelming. To ensure they stayed compliant to maximize their savings, they turned to Frazier & Deeter (FD) for expert guidance. 

What is Section 179D?

Section 179D of the Internal Revenue Code offers significant tax deductions for energy-efficient improvements made to commercial buildings. Eligible projects can receive deductions ranging from $0.58 to $5.81 per square foot. To qualify for the full deduction, improvements must adhere to prevailing wage and apprenticeship standards, ensuring compliance with federal guidelines.  

The Complexities of Section 179D

Managing a diverse portfolio across multiple states, the real estate firm faced several challenges in pursuing Section 179D deductions:  

  • The complexity of understanding and implementing the technical energy efficiency standards across various building types proved daunting.  
  • Achieving the full deduction required adherence to prevailing wage and apprenticeship standards, which added layers of compliance requirements.   
  • The real estate firm needed robust documentation and certification processes to mitigate risks in the event of an audit. 

Frazier & Deeter’s Approach

FD addressed these challenges by conducting an in-depth review of the real estate firm’s building portfolio. This evaluation focused on identifying potential upgrades, including HVAC systems, lighting and building envelope enhancements such as insulation, windows and roofing, that would qualify for the Section 179D deduction. By collaborating closely with the real estate firm’s engineering and facilities teams, FD ensured the proper implementation of upgrades that met IRS energy savings thresholds and the Department of Energy (DOE) guidelines, guaranteeing eligibility for the maximum deduction.  

A critical aspect of FD’s approach was ensuring compliance with federal labor standards. FD carefully reviewed labor contracts to confirm adherence to prevailing wage requirements and verified the inclusion of apprenticeship programs where necessary. This step was essential to securing the full tax deduction. Additionally, FD engaged certified energy professionals to perform energy audits and provide necessary certifications. The team meticulously documented all improvements and compliance measures, ensuring that the real estate firm’s claims were fully supported and reducing potential audit risks.  

The Outcome: $2.2 Million in Tax Deductions

FD’s efforts resulted in the real estate firm securing $2.2 million in tax deductions, significantly enhancing their cash flow and reducing overall tax liability. Beyond the immediate financial benefits, the energy-efficient upgrades led to reduced energy consumption and lower operating costs, supporting long-term operational savings. These improvements also aligned with the real estate firm’s sustainability goals, enhancing their market reputation and positioning them as leaders in green building practices. By meeting their corporate social responsibility (CSR) objectives, the real estate firm strengthened their standing in the industry and with stakeholders.  

Next Steps

Are you a commercial real estate owner or developer looking to maximize tax deductions for energy-efficient improvements? Contact FD to learn how we can help you leverage Section 179D and other tax-saving strategies to enhance your bottom line.  

Contributors

Tommy Zavieh, Partner

Shelia Anderson, Partner

Allen Tobin, Principal

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