Inflation Reduction Act of 2022 – 179D Tax Deduction
(Formally Energy Policy Act of 2005 – EPAct)
Section §179D offers a Tax Deduction of up to $5.65 per square foot of a new construction or addition/renovated commercial building. You may be eligible.
Who Qualifies for 179D?
Deductions are available to owners of private buildings and designers of public Government-Owned Buildings, Not-For-Profit Organizations. Churches, Hospitals, Private Schools and Universities, Private Foundations, Political Organizations and REITs. Government-owned facilities allow the deduction to be allocated to the designer. Owners, designers, and architects must have energy efficient buildings placed in service from January 1, 2006.
Eligible Work: New Construction • Remodels • Additions • Tenant-Owned Leasehold Improvements • Upgraded Facilities
How §179D works
- For buildings placed in service before Jan. 1, 2023 clients may receive up to $1.88/sqft for Lighting, building Envelope and HVAC energy improvements over ASHRAE standard.
For buildings placed in 2023 there are two deduction Ranges you may qualify for.
Base Deduction: Sliding scale of $0.54/sqft for 25% energy reduction and for every 1% of additional reduction above 25% it will provide an additional $0.02/sqft of deduction up to $1.07/sqft.
**Bonus Deduction: If prevailing wage requirements are met or the project start date was prior to 01/29/2023 – Sliding scale of $2.68/sqft for energy savings of 25% and for every 1% of additional reduction above 25% it will provide an additional $0.11/sqft of deduction up to $5.36/sqft
- For buildings placed in service in 2024 there are two deduction Ranges you may qualify for. ASHRAE Standard in effect from four years prior to completion of construction.
Base Deduction: Sliding scale of $0.57/sqft for 25% energy reduction and for every 1% of additional reduction above 25% it will provide an additional $0.02/sqft of deduction up to $1.13/sqft.
**Bonus Deduction: If prevailing wage requirements are met or the project start date was prior to 01/29/2023 – Sliding scale of $2.83/sqft for energy savings of 25% and for every 1% of additional reduction above 25% it will provide an additional $0.11/sqft of deduction up to $5.65/sqft
ENERGY STAR for Commercial Buildings may qualify for 179D
The ENERGY STAR Label is one of the most recognizable labels in the United States. Companies now want their buildings to reflect the high standards and quality of their work environment, and ENERGY STAR is a straight forward and cost effective approach to achieving this goal. A company that earns the ENERGY STAR Label on their building is not only displaying environmental leadership and social responsibility but are also reducing everyday operating costs, increasing profit margins and enhancing their image by choosing to certify their building with a credible brand. Learn more about ENERGY STAR.
Developers that obtain ENERGY STAR may also qualify for the 179D Tax Deduction, up to $5.00 per square foot for using energy efficiency measures.
How to Qualify for 179D
In order to determine if your building is eligible, EDSS collects the design documents of a given project to interpret the energy efficient features implemented into the project and will run an analysis of the building to determine what §179D deductions are available.
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