Two Choices

The 179D deduction aims to motivate commercial building owners to pursue efficiency upgrades that reduce energy usage. The amount deducted is based on square footage and how much efficiency is improved over baseline standards. 

The 45L credit provides a dollar-for-dollar tax credit up to $5,000 for making new or existing homes more efficient. The exact credit amount depends on the energy standards each home meets.

179D

The Internal Revenue Service tax code, specifically section 179D, permits a deduction of up to $5.65 per square foot for energy-efficient commercial building property systems, such as HVAC, hot water, interior lighting, and building envelope. This deduction is subject to an annual inflation adjustment. Section 179D has been in existence since 2006; however, it has been significantly underutilized by individuals who have constructed, renovated, or designed energy-efficient buildings. The 179D Tax deduction was permanently extended by the Consolidated Appropriations Act, 2021, H.R. 133, which was enacted into law on Dec. 27, 2020. This change enables companies to plan around and with 179D.

A certified third-party analysis is necessary for a 179D study. Modeling a building's energy consumption and performance against a reference building is conducted using IRS-approved energy software, in accordance with the standards established by ASHRAE 90.1 and California ACM. The deduction is permissible if the building meets or exceeds the threshold for energy consumption reduction.

Who is Eligible?

Beginning January 1, 2023, the deduction is available to:​ • Owners of qualified commercial buildings​ • Designers of EECBP/EEBRP installed in buildings owned by specified tax-exempt entities, including certain government entities, Indian tribal governments, Alaska Native Corporations, and other tax-exempt organizations​ The deduction was previously available only to owners of qualified commercial buildings and designers of EECBP installed in buildings owned by certain government entities.

Qualification Requirements

Under the Inflation Reduction Act, energy savings must be measured against the latest ASHRAE standard affirmed by the Secretary of Treasury at least 4 years before the property is placed in service.​ 

For buildings that begin construction on or after January 1, 2023, and have energy-efficient property placed in service on or after January 1, 2027, ASHRAE Standard 90.1-2019 applies.​ For buildings that begin construction before January 1, 2023, or are placed in service before January 1, 2027, ASHRAE Standard 90.1-2007 applies.​ 

It’s not too late to claim deductions for improvements made in previous years as well. For commercial building owners, improvements made after January 1, 2006, are eligible, and available benefits can still be captured on a look-back basis.

Per Square Foot Deduction

2005-2020 $1.80

2021 $1.83

2022 $1.88

2023 $2.68-$5.36

2024 $2.83-$5.65

Obtaining Certification & Applying for 179D Deductions

In order to be eligible for this tax incentive, it is necessary to fulfill the application process by completing and submitting the necessary documentation, as well as providing the requisite analysis and certification. The certification must be prepared by a certified and qualified individual who is not associated with the project, specifically a licensed contractor or engineer from the jurisdiction where the building is physically located.