Energy Efficient Commercial Buildings Deduction 179D

A federal tax deduction for commercial building upgrades that reduce energy and power costs.

Energy-efficient building upgrades that result in a combined 25% energy savings or more. The credit may only be used on specified large public and commercial buildings.

Eligible building upgrades include:

• Interior lighting systems. (exterior lighting does not qualify)
• Heating, cooling, and ventilation. (HVAC)
• Hot water systems.
• Building envelope. (windows and roofing)

Eligible buildings must be:

• Located within the United States.
• New Buildings must meet Reference Standard 90.1 of the ASHRAE and the Illuminating Engineering Society of North America.

The deduction value is determined by the amount of annual energy savings and is the lesser of:

• The cost of the installed project(s).
• The savings per square foot calculated as:
  • $0.50 per square foot for a building with 25% energy savings.
  • Plus $0.02 per square foot for each percentage point of energy savings above 25%.
  • Up to a maximum of $1.00 per square foot for a building with 50% energy savings.

The credit value per square foot increases five-fold if local prevailing wages are paid and apprenticeship requirements are met.

• Owners of qualified commercial buildings.
• Designers of qualified commercial buildings owned by specified tax-exempt entities.

The credit is available for projects on or after January 1, 2023, and has no expiration date.

Details on the application process can be found here. Tax-exempt entities should talk to their contractors about passing along the savings from this tax deduction.

Visit the federal website for more details on what qualifies and how to use the credit.