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Own your building? Missing out on improvement tax breaks and incentives?

Updated: Aug 23, 2023

Business owners who own their property can increase their profit by combining government incentives together in a way that maximizes benefits and reduces the time it takes to manage the finances of any improvement or rehab project.

If you know a real estate developer or a business that owns commercial property – either multiple locations or a single location, there is a comprehensive set of tax planning services for companies with real estate holdings that benefit them greatly.

For the following, use the example of a $40million commercial building with 1,000,000 square feet of space. If the owner undertook all of these services, they could receive the following:

· $4m in benefit at a 21% tax rate on a $20m deduction from a Cost Segregation study,

· $1m in benefit at a 21% tax rate on a $5m deduction from an Energy Efficiency study,

· $300k in benefit in Solar/Battery Investment Tax Credits

· $100k in benefit from installing electric vehicle charging stations

That’s a total of $5.4m on a $40m investment, or about 13.5% of the cost of the building.

Cost Segregation

This service allows owners to accelerate the depreciation of properties. While every project is different, it’s possible to obtain a tax deduction of around 50% of the property value. So, instead of depreciating a $40m property at ~$1m per year, deduct ~$20m now, and the rest over the 39-year period. This works with the help and analysis of experienced architects and engineers who are able to go into far greater detail to identify every component eligible for accelerated or bonus depreciation.

179D Energy Efficient Commercial Building Deduction

This service allows a deduction of up to $5.36 per square foot for energy efficient construction in the areas of interior lighting, HVAC, and building envelope. This includes retrofits of older buildings to reduce energy costs. So, if able to maximize the benefit to the full $5 per square foot, a 1m square foot building would result in a $5m deduction.

Solar/Battery Investment Tax Credit (ITC)

This service allows a credit of 30% of the cost of installing a solar, wind, and/or battery project on the property. Several additional “bonus” credits also exist, depending on the location of the property, meaning it’s very possible to obtain a credit of 40% or more. Covering the entire energy usage of a 1m square foot building could require up to a $1m investment, resulting in a $300k (or more) credit. Partner with commercial solar installers who are familiar with the ITC can provide the necessary documentation to substantiate the full credit amount in a tax credit documentation package.

Electric Vehicle charging Stations

This service allows a credit of 6% up to 30% of the cost of installing electric vehicle charging stations on the property, depending on the census tract. State incentives and public utility incentives also exist also. In some areas these incentives can add up to 100% of the total project cost. If the property installed 10 DC Fast Charging stations while located in an eligible census tract and working with a locality and public utility offering additional incentives, it is very possible to achieve $100k or more in total incentives.

Information provided by Les Bryson with Probity Tax Recovery

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