Starting in 2023, the Inflation Reduction Act has significantly expanded the §179D Tax Deduction program, substantially increasing the incentive to an impressive $5.65 per square foot (plus applicable inflation adjustments). §179D of the Internal Revenue Code (IRC) is a valuable tax incentive designed to reward energy-efficient practices in commercial buildings. Originally introduced as part of the 2005 Energy Policy Act (EPACT), this provision allows for a tax deduction of up to $1.88 per square foot, factoring in inflation adjustments.
The §179D Tax Deduction is specifically applicable to commercial buildings that make substantial reductions in their energy consumption related to interior lighting, heating, cooling, and building envelope improvements. Qualifying buildings can now enjoy even more substantial benefits, for HVAC improvements, building envelope enhancements, and lighting system upgrades, all contributing to a total potential deduction of up to $5.65 per square foot (plus applicable inflation adjustments), thanks to the recent expansion brought about by the Inflation Reduction Act of 2022.
(Placed in Service 01/01/2023 or Later)
(Placed in Service Before 12/31/2022)
Includes Inflation Adjustment add-on
Includes Inflation Adjustment add-on
Partial Deductions Available Based on Energy Qualifications and Labor Requirements
Partial Deduction Available depending on energy savings per category (Lighting, HVAC, Building Envelope)
5x Multiplier in effect for compliance with Prevailing Wage and Apprenticeship Requirements
Labor Requirements do not affect legacy §179D Tax Deduction Amounts
Expanded to include ALL tax-exempt organizations
Only Government Building Owners may Allocate §179D to designers.
Can no longer use partial system analysis for qualification
Labor Requirements do not affect legacy §179D Tax Deduction Amounts
If new capital expenditure occurs private sector can be re-certified every 3 years, and tax-exempt every 4 years
Prior to IRA changes §179D was only available up to $1.80/sf over the life of a building
ASHRAE 90.1-2007 is the standard through 12/31/2026, increases to 90.1 2019 after 1/1/2027
ASHRAE 90.1-2001 through 12/31/2014 and 90.1 2007 between 1/1/2015 and 12/31/2026
Retrofits may use Energy Use Intensity methodology (Pre and Post Retrofit Measurement and Verification)
A simplified methodology for the lighting category maybe used, with additional partial qualification opportunities.
Public Law No: 117-169: The Inflation Reduction Act of 2022; expands §179D and §45L drastically, increasing the §179D Tax deduction amount up to $5.00 per square foot, adding new methodology for certification of the deduction, including benefit for non-profits and tribal governments, in addition to increasing the ASHRAE Standards and adding a Prevailing Wage and Apprenticeship requirements.
2022-61 IRB: Notice 2022-61: Prevailing Wage and Apprenticeship Initial Guidance under §45(b)(6)(B)(ii) and Other Substantially Similar Provisions
Discover the potential benefits of the EPAct §179D Tax Deduction for your company. Start by taking our brief eligibility quiz.
As a subject matter expert in 26 U.S.C. § 179D, the recent case of United States v. Oehler underscores the vital importance
The landscape of residential construction is shifting significantly towards energy efficiency, especially now that the federal government has upgraded a powerful tax
The construction industry significantly impacts the environment, but there’s a growing movement toward sustainability that builders, contractors, and developers simply cannot ignore.