179D Energy Efficiency
§179D Energy-Efficient Building Deduction
Claim up to $5.00/SF in tax savings for energy-efficient upgrades—boosting cash flow with full IRS approval.
Why It Matters
- Up to $5.00/SF in deductions under the Inflation Reduction Act (2023–2032).
- No amended returns required for current-year projects.
- Government and tax-exempt entities may allocate the deduction to designers (architects, engineers, contractors, ESCOs).
- Audit-ready with certified engineering documentation.
Qualifying Systems
- Interior and exterior Lighting
- HVAC and Hot Water systems
- Building Envelope (roof, walls, insulation, windows, doors)
Certification Requirements
- Energy modeling compared to ASHRAE 90.1 standards (affirmed 4 years prior to service date).
- Field inspections and certification by a licensed professional using DOE-approved software.
- Allocation letter required when deductions are assigned to designers on government/tax-exempt projects.
Real-World Example
A developer completes a 200,000 SF commercial building with energy-efficient HVAC, lighting, and building envelope improvements. The building is modeled and certified to exceed ASHRAE standards by 35%.
Under the Inflation Reduction Act, meeting prevailing wage and apprenticeship standards allows the project to qualify for a $3.50/SF deduction. This results in a current-year deduction of $700,000, significantly reducing taxable income and freeing cash for reinvestment.
Key Takeaway for CPAs & Advisors
- Review fixed asset systems to identify qualifying efficiency upgrades.
- Coordinate with engineers for certification and allocation letters.
- Ensure proper reporting to capture maximum deductions without amending prior returns.
