New IRS Form 7205 for Returns Requiring Section 179D Documentation
Authors: Andre Kohn, Senior Associate, Tax Credits & Incentives Advisory and Bill Harbeson, Manager, Tax Credits & Incentives Advisory
On February 21, 2023, the Internal Revenue Service (IRS) released a new Form 7205 requiring documentation for the Energy Efficient Commercial Building Deduction.
The Section 179D Energy Efficient Commercial Buildings Deduction (Section 179D), is a tax incentive for commercial building owners and designers who construct or make energy-efficient improvements to eligible commercial buildings. The Inflation Reduction Act of 2022 (IRA) expanded eligible building types and qualifying buildings are now eligible to claim up to $5.00 per square foot in tax deductions.
To properly document a claim to Section 179D for buildings placed in service in 2022, taxpayers must complete the new Form 7205.
The new form is designed to streamline the process of claiming the tax deduction and make it easier for taxpayers to provide the necessary information.
The New Form 7205 Is Broken Into Four Sections:
Section 1: Building and Energy Efficient Commercial Building Property (EECBP) Information
The building owner or primary designer is required to provide information about the building, such as the address and placed in service date of EECBP. This section also requires potential energy savings based on square footage and EECBP type.
Section 2: Computation of EECBP Deduction Amount
Requires information to calculate the maximum allowable deduction according to the lesser of the cost of EECBP and the allocated or claimed Section 179D deduction amount pursuant to IRC Notice 2006-52, section 2.2.
Section 3: Certification Information
Building owners and primary designers are required to list contact information of the third-party company retained to complete Section 179D calculations pursuant to IRC Notice 2006-52, section 5.
Section 4: Designer Allocation Information
Primary designers who have received Section 179D allocations from government entities are required to provide the contact information of the authorized signers of their allocation letters pursuant to IRC Notice 2008-40, Section 3.
Additional Requirements for Section 179D
In addition to completing the Form 7205, taxpayers must also provide a report from a qualified independent third-party who has conducted an energy efficiency analysis of the building(s). This report must be based on the guidelines established by the Department of Energy and must include information such as the energy-efficiency improvements made to the building, the energy savings achieved and the methodology used to calculate the energy savings.
How Can Cherry Bekaert Help?
Cherry Bekaert’s Tax Credit & Incentives Advisory (TCIA) practice’s mission is to identify, calculate and document incentives specific to U.S.-based activities for which the tax code has provided cashflow and permanent tax benefits for U.S. businesses. Regarding Section 179D, we provide a streamlined and simplified process for taxpayers to take advantage of this powerful provision that promotes energy-efficiency in the commercial building sector.
Reach out to a Cherry Bekaert tax advisor today to guide you through applying and qualifying for the Section 179D tax deduction.