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!

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

Eligible Tax-Exempt Entities

Charitable Organization
Churches & Organizations
Private Schools & Universities
Private Foundations
Political Organizations
Other Non-Profits
Native American Tribal Governments
Alaska Native Corporations

Frequently Asked Questions

What is a 179D eligible improvement?

Taxpayers that invest in ground-up construction or in improvements to their existing buildings are potentially eligible for 179D deductions. Eligible improvements must reduce energy use by investing in any of the following categories: a building's envelope, HVAC, and/or interior lighting systems. There are different ways to pursue a deduction and all require certification by a qualified expert.

What are 179D eligible deductions for Architects & Designers?

Architects and designers who implement energy-efficient designs on government buildings are also eligible for the 179D deduction if their design meets the criteria.

Who are the ideal candidates for the 179D Tax Deduction?

Unlike most deductions, which are based on the amount spent, this deduction is primarily based on affected square footage. Ideal candidates will generally have improvements with a square footage of at least 50,000 square feet. A wide range of improvements, from simple lighting retrofits to full-scale construction projects, qualify for this timely tax break. Other great candidates include regional or national chains with multiple locations.

What is the process for claiming a 179D Tax Deduction?

The basis for developing and supporting this deduction is a detailed engineering analysis, as prescribed by the IRS. Our multi-disciplinary team of engineers and tax experts will ensure that you obtain the maximum available deductions while following IRS guidance to properly certify the tax deductions. Additionally, our team can help you claim deductions that were missed from prior years.

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179D Tax Deduction One Pager

What are the Benefits of the 179D Tax Deduction?

Size of Improvement
Partial Tax Deductions Available Prior to 2023
Maximum Tax Deduction 2022
Maximum Tax Deduction 2023
Lighting
HVAC
Envelope
50,000 sf
$15.75K - $31.5K
$31.5K
$31.5K
$94K
$250K
100,000 sf
$31.5K - $63K
$63K
$63K
$188K
$500K
300,000 sf
$94.5K - $189K
$189K
$189K
$564K
$1,500K

What Improvements are Eligible for the 179D Deduction?

Taxpayers that invest in ground-up construction or in improvements to their existing buildings are potentially eligible for 179D deductions. Eligible improvements must reduce energy use by making investments in any of the following categories: a building’s envelope, HVAC, and/or interior lighting systems. There are different ways to pursue a deduction and all require comparison to the ASHRAE Standards and certification by a qualified individual.

Building Envelope

Energy efficient construction or improvements to walls, floors, roofs, fenestrations, and doors

HVAC

Improvements relating to energy efficient HVAC systems

Lights

Construction or improvements to building lights for energy efficiency

179D Tax Insights

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