Energy Efficient Commercial Buildings Deduction 179D

What qualifies

The 179D tax deduction is a per-square-foot tax credit for energy-efficient building upgrades which 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 U.S
• Meet Reference Standard 90.1 of the ASHRAE and the Illuminating Engineering Society of North America

Incentive value

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 5-fold if local prevailing wages are paid and apprenticeship requirements are met.

Who is eligible

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

When the credit is available

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

How to claim the credit

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 credit.

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

Disclaimer: None of the information presented on this website should be considered official legal or financial advice. Please contact a licensed tax professional for additional information.