If you are the owner of a commercial building, or involved in the design or construction of a government owned or a not-for-profit building, you may qualify for newly improved tax deductions under the Inflation Reduction Act of up to $5.81 per square foot for energy-efficiency improvements.
The OBBB created a termination date for projects that begin construction after June 30, 2026. You should act immediately to avoid losing out on these energy efficiency deductions.
EPAct 179D Deduction Levels
The maximum allowable benefit increased from $1.88/sf for buildings placed in service in 2022, to:
- $5.65/sf in 2024
- $5.36/sf in 2023
Prior to 2022,
- In 2021, the maximum deduction was $1.82/sf
- In 2006-2020, the maximum deduction was $1.80/sf
- Overall building energy usage must be more efficient than standard by specified thresholds
What the EPAct 179D means for you:
- Potential for immediate tax benefits in-lieu of depreciation. Building owners are not required to file amended tax returns for previous projects.
- Deductions are for installation of, or improvements to:
- Energy-efficient lighting,
- HVAC, or
- Building envelope.
- Maximized benefit (up to $5.81/sf) requires prevailing wage on construction for projects in service on 1/29/2023 and later
- Safe Harbor exists for buildings that started construction prior to 1/29/2023 with no requirement of prevailing wage.
Which properties qualify?
New construction and renovations include:
- Commercial buildings of any size
- Government buildings (federal, municipal, prisons, etc.)
- Tax exempt entities such as K-12 schools, hospitals, places of worship, private schools & universities, not-for-profit owned buildings, Native American Tribal governments
What types of taxpayers can claim 179D?
- Designer, engineer, or an architect of a Federal, State or municipal government building, or tax exempt building. Examples include:
- Architects, Design/Build Contractors, Mechanical Engineers, Electrical Engineers, Building Automation and Building Controls firms
- Commercial building owners
- Commercial tenant who owns depreciating assets such as HVAC or lighting
