179D Energy Efficient Commercial Building Deduction
A Federal Tax Incentive Generating Additional Deductions up to $5.81 per sqft in 2025
179D Energy Efficient Commercial Building Deduction
A Federal Tax Incentive Generating Additional Deductions up to $5.81 per sqft in 2025
§179D ENERGY EFFICIENT COMMERCIAL BUILDING DEDUCTION
The §179D Energy-Efficient Commercial Buildings Deduction is a tax incentive designed to promote energy-efficient construction. Enhanced by the Inflation Reduction Act of 2022, the maximum §179D Deduction was significantly increased for buildings placed into service starting in 2023.
- The deduction starts at 50 cents* per sqft for a 25% energy efficiency improvement over the baseline. For each additional percentage of energy reduction beyond 25%, the deduction increases by two cents per sqft, up to a maximum of $1.00* per sqft at 50% energy reduction.
- When construction meets or is exempted from the Prevailing Wage and Apprenticeship (PWA) requirements, the deduction starts at $2.50* per sqft and increases by ten cents per sqft up to a maximum of $5.00* per sqft.
*Deduction amounts increases annually based on inflation adjustments.
DEDUCTION AMOUNTS
| PIS Year | Amount per sqft | PWA Amount per sqft |
| 2025 | $0.58 – $1.16 | $2.90 – $5.81 |
| 2024 | $0.57 – $1.13 | $2.83 – $5.65 |
| 2023 | $0.54 – $1.07 | $2.68 – $5.36 |
The §179D Deduction can be taken every three tax years when the building is placed in service in 2023 and thereafter (four in some situations).
- Example: If a taxpayer constructed a building in 2008 and took a deduction of $1.80 per square foot, prior rules prevented taking additional §179D Deductions for any subsequent energy efficiency improvements. Beginning in 2023, the Inflation Reduction Act allows for additional §179D Deductions for subsequent energy improvements.
Architects, engineers, and others can benefit for design work on tax exempt entities.
For buildings placed in service in 2023 and after, engineers, architects, and other designers can obtain §179D Deductions from tax-exempt entities, including:
- Public Organizations, such as:
- K-12 Schools, higher education, and libraries.
- Municipal buildings (police, fire stations, courthouses, and more).
- Public offices, and parking garages, airport terminals.
- Other Tax-Exempt Entities, such as:
- Charitable organizations.
- Religious institutions.
- Private schools and colleges.
- Non-profit hospitals.
- Private museums.
- Tribal governments.
- Any other organization falling under §501(c).
CASE STUDY
ICS successfully obtained over $4,000,000 in §179D Deductions for a national engineering firm who designed the entire HVAC system for multiple K-12 school buildings and offices.
PROPOSAL REQUEST
OUR SERVICE
Our team of engineers and tax professionals will perform free assessments to prequalify your project.
Our §179D Deduction service includes:
- Performing modeling and building inspections.
- Reviewing construction documents.
- Facilitating project scope interviews with the design team.
- Preparing certificates of energy efficiencies.
- Obtaining allocations from government building owners.
- Assisting with amended tax returns or filing a change in method of accounting.
- Coordinating with your tax preparer.
- Providing complementary audit support.
§179D DEDUCTION FOR 2022 AND PRIOR
For buildings placed in service from 2006 through 2022, the §179D Deduction allows building owners to claim up to $1.80 per square foot. In the case of a taxable year beginning after 2020, the $1.80 per square foot will be adjusted by inflation ($1.82 for 2021 and $1.88 for 2022).
To qualify, newly constructed or renovated buildings must exceed the ASHRAE standards for HVAC, building envelope and interior lighting. The §179D Deduction is available to commercial building owners as well as engineers, architects, and design contractors of government owned buildings. The building can be newly constructed or retrofitted with system improvements. Parking garages and residential buildings with four or more stories may also be eligible.
- For commercial building owners, the project must be completed on or after 2006 through 2022.
- For designers of government owned buildings, the deduction can go back to any open tax year (generally three years). The building must be a government project, including:
- K-12 Schools, higher education, and libraries.
- Municipal buildings (police, fire stations, courthouses, and more).
- Public offices, and parking garages, airport terminals.