What is the EPAct 179D Tax Deduction?

The 179D Deduction, also known as the Energy-Efficient Commercial Buildings 179D Tax Deduction, is a tax incentive first introduced in 2005 as part of the Energy Policy Act. The program’s intent is to drive commercial building owners and Designers of tax-exempt buildings to reduce their energy use by rewarding the implementation of energy efficient building components, specifically, the HVAC system, interior building lighting, and the building envelope for newly constructed buildings or renovations. In 2020, 179D became a permanent part of the tax code.

Who can Qualify?

• Architects, Mechanical Engineers, Electrical Engineers, and other designers of tax-exempt buildings
• Commercial Building Owners

Commercial building owners who are taxpayers can benefit from the program in the form of accelerated depreciation. However, many of the largest commercial buildings in the United States are owned by non-tax-paying entities, such as local municipalities, State and Federal governments, military facilities, K-12 schools, universities, etc., and therefore, they can’t reap the financial benefits of a tax deduction. However, Congress still wanted to incentivize the inclusion of energy efficient components in these buildings, so they expanded 179D to allow the building owner (government entity) the ability to allocate their deduction to the taxpaying designer of the energy efficient properties of the buildings.

What did the Inflation Reduction Act Change?

In 2022 and prior years, architects, engineers, and design-build contractors are eligible to receive allocations on projects they designed for federal, state, and local government-owned buildings. Starting in 2023, they can ALSO receive allocations for their design work on the tax-exempt entities listed below. This means many building types that were previously ineligible to participate in 179D can now do so!

Now eligible tax-exempt entities include:

1. charitable organizations
2. churches & religious organizations
3. private schools & universities
4. private foundations
5. political organizations
6. other non-profits
7. Native American tribal governments
8. Alaska Native Corporations

Further, the Inflation Reduction Act significantly expanded the benefit of the program from up to $1.88/square foot to up to $5.00/square foot.

Eligibility Expansion in 2023 and forward includes Tax-Exempt Entities

In 2022 and prior years Architects, Engineers, and Design-Build contractors are eligible to receive allocations on projects they designed for federal, state, and local government-owned buildings. Starting in 2023 they can now ALSO receive allocations for their design work on the tax-exempt entities listed below. This means many building types that were previously ineligible to participate in 179D now can!