The IRC §179D Energy-Efficient Commercial Building Deduction is a federal tax incentive for taxpayers who build energy-efficient buildings or make energy-efficient improvements to existing structures. §179D has been around since 2006 but has recently been revamped and expanded under the Inflation Reduction Act to incentivize energy efficiency in commercial and certain residential buildings permanently. So, what does this mean for property owners? If your property qualifies, you could receive the following deduction on your tax return:
- Maximum deduction for buildings put in place pre-2023: $1.88/sq ft.
- Maximum deduction for buildings put in place in 2023: $5.36/sq ft.
- Maximum deduction for buildings put in place in 2024: $5.65/sq ft.
Who can qualify for the deduction?
- Commercial and certain residential building owners
- Architects
- Engineers (Mechanical and Electrical)
- Construction companies
- Other Designers
What are the qualifications?
The building must be renovated, retrofitted, or a new construction in order to qualify for §179D. The following types of properties may be eligible for IRC §179D deduction: warehouses, offices, retail properties, manufacturing properties, multi-family developments (4+ stories), hotels, and even casinos. The building must be either a ground-up construction or improvements to reduce energy use in an existing building. If you are making an improvement to HVAC, hot water systems, interior lighting systems, or improvement to the building’s envelope, you may be able to benefit from this incentive.
The building owner (or primary designer) must receive a certification of energy savings from an outside party in order to claim IRC §179D deduction. This will involve modeling the energy efficiency improvements to calculate energy savings. An engineer will inspect to verify that the energy-efficient property has been placed into service and matches the modeled plans. The company will then claim the deduction for the same tax year when the building is placed in service or by filing an accounting method change for properties placed in service in earlier years.
Contact your GBQ engagement team or Anthony Brannen to discuss if your property may be a potential candidate for IRC §179D deduction.
