179D’s energy-efficient commercial buildings deduction encourages taxpayers to upgrade specific commercial buildings. In December 2020, the Consolidated Appropriations Act of 2021, P.L. 116-260, made the §179D deduction permanent. On Aug. 16, 2022, the Inflation Reduction Act of 2022, P.L. 117-169, amended §179D. The changes apply to tax years starting after Dec. 31, 2022, and eligible property placed in operation after that date.
These new modifications provide taxpayers as much as $5.65 per sq. ft. in deductions to stimulate the development of energy-efficient public commercial through the “designer” and multifamily buildings at least four stories tall through the “building owner”. Reducing restrictions under the amended §179D allows energy-efficient retrofits of older buildings to qualify for the deduction. New regulations encourage tax-exempt organizations to make their premises more energy-efficient. The new requirements add complexity, including fulfilling prevailing wage and apprenticeship standards to get the full deduction.
As tax season approaches, architects, engineers, contractors, and commercial building owners have reason to celebrate the latest adjustments to the Internal Revenue Code (IRC) §179D. The Inflation Reduction Act, enacted to address the ever-changing economic landscape, brings forth modifications that directly impact the annual taxpayer deduction, with the tax year 2024 adjustments unveiled on November 9, 2023.
The Inflation Reduction Act ensures that IRC §179D keeps pace with economic changes, providing valuable incentives for architects, engineers, and contractors involved in tax-exempt buildings and private commercial building owners undertaking new construction or improvements.
Key Relevant Changes Placed in Service 1/1/2023
| 25% REDUCTION | EACH
ADDITIONAL % POINT |
50% OR HIGHER | ||
| PREVAILING WAGE &
APPRENTICESHIP REQUIREMENTS |
MEETS REQUIREMENT | $2.68 / SF | $0.11 / SF | $5.36 / SF |
| DOES NOT MEET REQUIREMENT | $0.54 / SF | $0.02 / SF | $1.07 / SF | |
Key Relevant Changes Placed in Service 1/1/2024
| 25% REDUCTION | EACH
ADDITIONAL % POINT |
50% OR HIGHER | ||
| PREVAILING WAGE &
APPRENTICESHIP REQUIREMENTS |
MEETS REQUIREMENT | $2.83 / SF | $0.11 / SF | $5.65 / SF |
| DOES NOT MEET REQUIREMENT | $0.57 / SF | $0.02 / SF | $1.13 / SF | |
For tax years 2023 and 2024, the §179D inflation adjustment amounts, detailed in Revenue Procedures 2022-38 and 2023-34, serve as crucial guidelines for planning. The deduction per square foot, showcased in the above-provided charts, outlines the limits of the available incentive, ranging from 25% to 50% energy cost savings. The prevailing wage and apprenticeship (PWA) requirements significantly determine the ultimate tax deductions available.
An essential factor to consider is the exemption from PWA requirements granted to taxpayers if construction commenced before January 30, 2023. This exemption provides flexibility to eligible projects and further enhances the attractiveness of pursuing a §179D study.
One of the key takeaways from the adjustments is that taxpayers stand to benefit significantly from the increased §179D benefit in tax year 2023. With a 7% higher benefit than the nominal Inflation Reduction Act values, these adjustments create an environment where energy efficiency efforts are even more rewarding.
