Updated Section 179D Tax Deductions for Energy Efficiency in Commercial Buildings
The Section 179D tax deduction encourages energy efficiency in commercial buildings, offering significant tax incentives for installations that improve energy consumption. The deduction, established as a permanent program through the Consolidated Appropriations Act of 2021, benefits building owners and eligible tenants.
Eligibility and Benefits
Owners of new or existing buildings can claim up to $1.88 per square foot for installing systems that enhance interior lighting, the building envelope, or heating, cooling, ventilation, and hot water systems. These installations must lead to a reduction in energy and power costs by at least 50% in comparison to the minimum requirements set by the ASHRAE Standard 90.1.
If the system is installed on government property, the deduction can be claimed by the designer primarily responsible for the system. Non-tax paying entities, such as NGOs or churches, are generally ineligible unless they participate through an energy-as-a-service agreement with a tax-paying company.
Deduction Amounts by Compliance Path and Year
The following table summarizes the tax deduction amounts available for fully and partially qualifying properties across different years:
| Compliance Path | Requirement | Deduction Before 2021 | Deduction Starting 2021 | Deduction Starting 2022 |
|---|---|---|---|---|
| Fully Qualifying Property | 50% Reduction | $1.80/ft² | $1.82/ft² | $1.88/ft² |
| Partially Qualifying Property | Envelope | 10% Savings | $0.60/ft² | $0.63/ft² |
| HVAC and HW | 15% Savings | |||
| Lighting | 25% Savings | |||
| Interim Lighting Rule | 25%-40% Reduction | $0.60/ft² | $0.61/ft² | $0.63/ft² |
Note: The deduction is prorated for partial qualifications based on the specific reduction in energy use.
Updates and IRS Guidance
Projects completed by December 31, 2020, are assessed under the guidelines of ASHRAE Standard 90.1-2007, while those initiated after January 1, 2021, will align with the most recent ASHRAE standards. The IRS is expected to release updated guidance for projects initiated post-2020 under the Inflation Reduction Act. For the latest information, visit the Internal Revenue Service Inflation Reduction Act website.
This structured presentation of the tax deductions available under Section 179D will help building owners and designers better understand the financial benefits of investing in energy efficiency. Updates to this information will be provided as new IRS guidance becomes available.