IRS Clarifies the Applicable ASHRAE Reference Standards for the §179D Energy Efficient Commercial Building Deduction

The §179D Energy Efficient Commercial Building Deduction provides a tax incentive to encourage energy efficient construction. It applies to both newly constructed and renovated buildings targeting energy efficient HVAC and lighting systems as well as the building envelope. The §179D Deduction is available to commercial building owners as well as engineers, architects, and other designers of buildings owned by government agencies and other tax-exempt entities.

The §179D Deduction requires energy modeling whereby the building is compared to the same building constructed to the minimum requirements of a specified ASHRAE 90.1 Reference Standard. The version of the standard depends on the year when the building is placed in service. The taxpayer is eligible for the §179D Deduction when the building meets the required energy reductions.”

The Inflation Reduction Act of 2022 lowered the minimum required savings in total annual energy and power cost, while increasing deduction amounts. However, the Act left the Reference Standard as ASHRAE 90.1-2007 until the Department of Energy affirmed a newer standard.

In Announcement 2023-1, the IRS affirmed ASHRAE 90.1-2019 as the new Reference Standard. The new standard will be applicable for any projects placed in service after 2026. The IRS also clarified that ASHRAE 90.1-2007 will remain the Reference Standard for any projects placed in service before the newer standard goes into effect. In addition, taxpayers who began construction before 2023 may utilize Reference Standard 90.1-2007 regardless of when the building is placed in service.

Thus, for 2023 through 2026, energy efficient buildings with a 25% reduction when compared to ASHRAE Reference Standard 90.1-2007 can now qualify for a §179D Deduction of $2.50 per square foot. The deduction increases to a maximum deduction of $5.00 per square foot if a 50% reduction in energy costs is reached and prevailing wage and apprenticeship requirements are met. If prevailing wages and apprenticeship standards are not met, the §179D Deduction ranges between $.50 to $1.00 per square foot. » §179D Deduction Details

Placed In Service Reference Standard Required Energy Reduction
(whole building approach)
Deduction Amount
(whole building approach)
2015 & before 90.1-2007 50% $1.80 per sqft
2016 – 2022 90.1-2007 50% $1.80 per sqft, $1.82 per sqft for 2021, and $1.88 per sqft for 2022.
2023 – 2026 90.1-2007 25% $2.50 up to $5.00 per sqft if Prevailing Wage and Apprenticeship standards are met, $.50 to $1.00 if not.
2027 & after 90.1-2019 25% $2.50 up to $5.00 per sqft if Prevailing Wage and Apprenticeship standards are met, $.50 to $1.00 if not.

Can your commercial bulding qualify for §179D Deduction?

ICS Tax, LLC has the expertise to properly obtain §179D Deduction. We have Professional Engineers licensed in all states to perform energy modeling, building inspections, and preparing certificates of compliance. For designers of public and other buildings owned by tax exempt entities, we also have experts to complete and obtain deduction allocations. » Let us partner with you