Some tax deductions and credits will expire or change after filing 2021 taxes. Here’s a review of ones to take advantage of if you qualify.
A cost segregation study provides an in-depth, engineering-based analysis of the costs associated with the acquisition, construction or renovation of a building. A properly done study results in additional depreciation deductions and can accelerate depreciation, increase current tax deductions, defer income tax and increase cash flow. Even if the building was purchased, constructed or expanded in a prior year, a cost segregation study and a simple change in accounting method can allow the taxpayer to claim the depreciation deductions of prior years without having to amend prior-year tax returns.
Bonus depreciation is 100% in 2021, which means all short-life assets can be depreciated during the first year of ownership. It shifts to 80% in 2022 and continues to 0% in 2026.
A commercial buildings energy efficiency/179D tax deduction is available for owners who install qualifying energy efficient systems in their buildings. Owners may deduct up to $1.80 per square foot if they install interior lighting, building envelope, or heating, cooling, ventilation or hot water systems that reduce energy costs by 50% or more, the U.S. Department of Energy reports.
This deduction will increase annually, starting in 2021 to account for inflation. In addition, the energy efficiency criteria have been made more stringent to use the most recent version of the ASHRAE Standard 90.1. 179D was recently made permanent so it will not expire.
The Energy efficient home credit/45L is worth $2,000 per unit to developments with energy levels that meet certain standards below the national average. Dwellings including senior living, apartments and multi- or single-family homes are eligible. The residential property must be three stories or less above grade. The credit applies to units owned, sold or leased by the taxpayer in 2021. The credit is extended through 2021 but is not permanent.
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