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The Energy-Efficient Commercial Building Tax Deduction, also known as Section 179D, is a federal incentive designed to promote energy efficiency in commercial buildings.
It rewards qualifying building owners and eligible designers for making energy-efficient improvements, with eligible projects including new construction, renovation, and additions.
Architects, engineers, contractors, and energy consultants work on energy-efficient upgrades in commercial buildings.
Owners of commercial buildings who make eligible energy-efficient upgrades or improvements to their properties.
REITs that own and operate commercial buildings and make qualifying energy-efficient improvements can also claim the 179D Tax Deduction.
Commercial Buildings
This includes office buildings, retail stores, warehouses, hotels, and residential properties four stories and above, etc.
Tax-Exempt & Government-Owned Buildings
Tax-exempt organizations, buildings owned by federal, state, local, or tribal governments, including schools, universities, libraries, local municipalities, recreational centers, hospitals, military bases, 501(c)(3) nonprofits, tribal lands, and churches, may allocate the deduction to a qualified designer.
Combined, our experts have conducted over 10,000 energy studies, including energy modeling, site inspections, and certifications of results. We would love to answer all of your questions.
Yes, some buildings that are considered residential in use can be eligible for the 179D tax deduction if they are 4 stories or higher above grade.
Common examples of buildings that are considered residential in use that can qualify for the 179D tax deduction are Mid- to High-Rise Apartment complexes and Mixed-Use buildings.
Yes, government-owned buildings and other nontaxable entities do not pay federal taxes, but they are still eligible for the 179D Tax Deduction. However, in the case of government-owned buildings, the deduction can be allocated to the primary designer of the energy-efficient improvements. This designer can be an architect, engineer, contractor, or any other individual or firm responsible for designing the qualifying energy improvements.
Upgrading or installing lighting systems to more energy-efficient technologies, such as LED lighting, that reduce energy consumption.
Installing new equipment or implementing improvements in heating, ventilation, and air conditioning systems to optimize energy usage.
Installing new equipment or implementing improvements in heating, ventilation, and air conditioning systems to optimize energy usage.
The 179D Tax Deduction, which provides incentives for energy-efficient building design and construction, underwent significant changes as part of the Inflation Reduction Act of 2022 (IRA). For buildings placed into service beginning in 2023, the maximum deduction has increased to $5.00 per square foot, up from the previous limit of $1.88 per square foot. For example, if your qualified project covers 50,000 square feet, you could potentially receive up to $250,000 in tax deductions.
Section 179D of the Internal Revenue Code provides a tax deduction for energy-efficient commercial buildings. Generally, the building must be placed into service before the deduction can be claimed. “Placed into service” means the building is ready and available for its intended use, which typically occurs when construction is complete and the building is occupied.
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Yes, you can. For commercial building owners, if your building meets the eligibility criteria and the improvements were made after January 1, 2006, you can still claim the 179D Tax Deduction. For eligible designers of nontaxable property, there is only a three-year look-back period. It’s never too late to explore potential savings.
Yes, you can still claim the 179D tax deduction even if your building has received other energy-related incentives or rebates. However, it’s important to note that you cannot “double-dip” and claim the same expenses for both the 179D deduction and other incentives. You must adjust the total deduction amount to avoid duplication and ensure compliance with tax regulations.
Yes, certification under Leadership in Energy and Environmental Design (LEED) or other green building programs does not disqualify you from claiming the 179D tax deduction. The certification process for programs like LEED often involves meeting or exceeding certain energy-efficiency standards, which can align with the requirements for the 179D deduction. By demonstrating compliance with these programs, you may also have the documentation needed to support your 179D tax deduction claim.
Yes, you can claim the 179D tax deduction for retrofits performed in previous years, as long as they meet the required energy-efficiency standards and fall within the qualifying period (January 1, 2006, to December 31, 2023). There is no time limitation for claiming the deduction, so if your building improvements qualify, you can still take advantage of the savings even for older retrofits.
Yes, you can claim the 179D tax deduction for multiple qualifying projects. Each eligible project is treated as a separate deduction with its own 179D Study, allowing you to maximize savings for all energy-efficient improvements made within the designated qualifying period.
While the 179D Tax Deduction offers lucrative savings, navigating the complexities of tax regulations can be challenging. Seeking assistance from professionals experienced in energy efficiency and tax law is highly recommended. Engaging with consultants who do not outsource any portion of the study is also recommended for maximizing your deductions. Working with expertise in this area can help you identify eligible projects, accurately calculate deductions, and ensure that all documentation is correctly prepared.
Yes, there is a deadline to consider. For commercial building owners to claim the 179D deduction, the eligible building improvements must have been made after January 1, 2006. For eligible designers of nontaxable property, there is only a three-year look-back period. Therefore, if you’ve made qualifying improvements during this period and haven’t yet claimed the deduction, it’s essential to take action before the deadline.
No, nonprofits and tax-exempt organizations that do not have a tax liability cannot directly benefit from the 179D tax deduction.
However, these organizations often partner with eligible designers, such as architects, engineers, or contractors, to allocate the deduction to the designer in exchange for other considerations or cost savings. This way, the benefit directly flows to the tax-paying parties involved.