Tax Benefits of 179D for Climate-Controlled Self-Storage: A Win-Win for Owners

Understanding the 179D Energy Efficient Buildings Tax Deduction and Its Benefits for Climate-Controlled Self-Storage Facilities

The 179D Energy Efficient Commercial Buildings Tax Deduction is a significant incentive for business owners and developers who prioritize energy efficiency in their building designs. Originally introduced under the Energy Policy Act of 2005, this tax deduction encourages investment in energy-saving technologies and sustainable practices in commercial buildings, including self-storage facilities.

For self-storage owners operating or developing climate-controlled facilities, this deduction can provide substantial savings. Let’s explore how the 179D deduction works and how self-storage owners can take advantage of it to reduce costs while contributing to a greener future.

What is the 179D Energy Efficient Tax Deduction?

The 179D deduction offers building owners and designers a tax incentive for meeting certain energy efficiency criteria. As of 2023, the deduction can be up to $5 per square foot, depending on how much the energy efficiency of the building surpasses the requirements set by the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE).

The key areas for potential savings include:

• Building Envelope: Insulation, roofing, windows, and doors that reduce energy loss.
• HVAC and Hot Water Systems: Efficient heating, ventilation, air conditioning, and water heating systems that conserve energy.
• Lighting Systems: Installation of energy-efficient lighting such as LED systems.

How the 179D Deduction Can Benefit Climate-Controlled Self-Storage Facilities

Climate-controlled self-storage facilities, which require more energy to regulate temperature and humidity levels, are ideal candidates for energy-efficient upgrades. By meeting the energy efficiency standards for HVAC, building envelope, and lighting, owners can substantially reduce operational costs while benefiting from the 179D deduction. Here’s how:

1. Significant Tax Savings The 179D deduction can help self-storage owners reduce their tax liability. For instance, in a 50,000-square-foot climate-controlled facility, an owner could potentially receive up to $250,000 in tax deductions if the building meets the required energy efficiency standards. This lowers the overall project cost and increases ROI.
2. Lower Operating Costs Implementing energy-efficient systems, such as LED lighting and high-efficiency HVAC units, reduces utility expenses for climate control. Since self-storage facilities often operate 24/7, the savings on electricity and heating can be substantial over the long term.
3. Enhanced Facility Marketability Modern customers are increasingly conscious of sustainability. Marketing a self-storage facility as energy-efficient can attract environmentally conscious customers. Climate-controlled facilities, in particular, are in demand due to the specialized nature of stored items like electronics, artwork, and sensitive documents. Offering energy-efficient features adds value to your facility’s appeal.
4. Future-Proofing Against Rising Energy Costs Energy prices are volatile, and future increases can eat into profits. By investing in energy-efficient systems now and leveraging the 179D deduction, self-storage owners can mitigate the impact of future energy price hikes, ensuring more stable operating expenses.
5. Contributing to Sustainability Goals Many states and municipalities are increasing their focus on sustainability and may introduce stricter building efficiency regulations in the future. Taking advantage of the 179D deduction to invest in efficient systems now can ensure that your facility stays compliant with future regulations, avoiding costly retrofits.

Key Considerations for Self-Storage Owners

• Assessment and Certification: To qualify for the 179D deduction, the building must be assessed and certified by a third-party expert to verify the energy savings achieved. Partnering with experienced engineers familiar with self-storage facility designs and energy efficiency is crucial.
• Partial Deductions: Even if the entire building does not meet the full energy savings requirements, partial deductions can still be claimed based on improvements in specific areas, such as HVAC systems or lighting.
• Retrofits and Renovations: The 179D deduction is not only for new buildings but also applies to retrofits of existing facilities. Upgrading an older self-storage facility with energy-efficient HVAC and lighting systems can make it eligible for deductions.

For self-storage owners who are investing in or upgrading climate-controlled facilities, the 179D Energy Efficient Buildings Tax Deduction offers a powerful opportunity to reduce costs and improve profitability. With the potential to save on taxes, lower operating expenses, and position your facility as environmentally friendly, the benefits of energy efficiency are clear.

By taking advantage of this deduction, self-storage operators can maximize the profitability of their climate-controlled facilities while contributing to a greener, more sustainable future for the industry.

Of course as always reach out to your CPA or Tax Attorney for specific advice and instruction on how to incorporate any tax savings into your overall business plan.