The 179D Energy Efficient Commercial Buildings Deduction is a federal tax incentive designed to encourage energy efficiency in commercial buildings. Established under the Energy Policy Act of 2005, it allows building owners and designers to claim deductions for implementing energy-efficient systems.
Eligibility Criteria
Building Types
Commercial buildings, including offices, retail spaces, warehouses, and multifamily properties of four stories or more.
Eligible Parties
- Building Owners — Owners who invest in energy-efficient property.
- Designers — Architects, engineers, contractors of government-owned buildings can receive allocated deductions.
Qualifying Improvements
To qualify, improvements must reduce energy and power costs by a specified percentage compared to a reference building meeting the minimum requirements of ASHRAE Standard 90.1.
Interior Lighting Systems
HVAC Systems
Building Envelope
Deduction Amounts
Full Deduction
Up to $5.00 per square foot for buildings achieving a 50% reduction in energy and power costs.
Partial Deduction
Available for individual systems (lighting, HVAC, building envelope) that meet specific energy reduction targets.
Recent Updates
The Inflation Reduction Act of 2022 introduced significant changes:
Increased Deduction Limits
Enhanced deduction amounts, with a base deduction and a bonus deduction for projects meeting prevailing wage and apprenticeship requirements.
Updated Energy Standards
Energy savings must be measured against the latest ASHRAE standard affirmed by the Secretary of Treasury at least four years before the property is placed in service.
Application Process
Energy Modeling
Conduct a detailed energy analysis using qualified computer software to demonstrate the required energy savings.
Certification
Obtain certification from a qualified individual or firm confirming that the building meets energy efficiency requirements.
Documentation
Maintain thorough records, including the energy model, certification, and details of the installed systems.
Tax Filing
Claim the deduction using IRS Form 7205, “Energy Efficient Commercial Buildings Deduction.”
Additional Considerations
Basis Reduction: The building’s basis must be reduced by the amount of the 179D deduction claimed.
Allocation for Tax-Exempt Entities: Designers of energy-efficient systems in buildings owned by tax-exempt entities (e.g., government buildings) can be allocated the deduction.
Compliance: Ensure all installations and certifications comply with the latest IRS guidelines and ASHRAE standards.
For detailed information and the latest updates, refer to the IRS Energy Efficient Commercial Buildings Deduction page.