179D Energy Efficient Commercial Building Deduction
A Federal Tax Incentive Generating Additional Deductions up to $5.00 per SF
179D Energy Efficient Commercial Building Deduction
A Federal Tax Incentive Generating Additional Deductions up to $5.00 per SF
§179D ENERGY EFFICIENT COMMERCIAL BUILDING DEDUCTION
The Energy Policy Act of 2005 (EPAct) created the §179D Energy Efficient Commercial Building Deduction as a tax incentive to encourage energy efficient design. It applies to both newly constructed and renovated buildings targeting 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.
» Learn about the §179D Deduction for 2022 and prior.
§179D DEDUCTION BENEFITS AND REQUIREMENTS
For taxable years beginning in 2024, the maximum §179D Deduction increases to $5.65 per square foot, as follows:
- When constructed with prevailing wage and apprenticeship requirements, the §179D Deduction starts at $2.83 per square foot when compared to the ASHRAE Reference Standard 90.1 that was in effect for four years prior to the in-service date of the building. Each additional percentage of energy reduction will increase the deduction by $.10, up to $5.65 per square foot.
- If prevailing wage requirements are not met, the §179D Deduction is $.57 per square foot. Each additional percentage of energy reduction will increase the deduction by $.02 per square foot, up to $1.13 per square foot.
Prevailing Wage Requirements to Maximize the §179D Deduction for 2023 Projects and Onward
- Projects started prior to January 30, 2023, do not need to meet prevailing wage rates to qualify for the $2.83 to $5.65 higher tier of §179D Deductions.
- Any construction or installation started on or after January 30, 2023, must meet prevailing wage rates to qualify for the $2.83 to $5.65 tier of deductions.
» Details on satisfying prevailing wage and apprenticeship requirements.
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
MAXIMUM DEDUCTION AMOUNTS
|
Placed in Service Year
|
Amount
|
|
2024
|
$5.65 /sqft
|
|
2023
|
$5.36 /sqft
|
|
2022
|
$1.88 /sqft
|
|
2021
|
$1.82 /sqft
|
|
2020 and prior
|
$1.80 /sqft
|
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.
§179D DEDUCTION AVAILABLE IN
ICS-tax.com/services/179d