Section 179D Tax Deduction

*** This Credit Is Now Permanent ***

The Section 179D Tax Deduction

Section 179D Tax Deductions applies to energy efficiency improvements to a commercial building.

Improvements made to your commercial building energy efficiency standards by upgrading:

  • Interior lighting systems. (25%)
  • Building envelope construction. (10%)
  • Heating, cooling, ventilation, and hot water systems. (15%)

In 2020 or prior years, the deduction was $1.80/ft² or $0.60/ft² per improvement. This means you can qualify for $0.60/ft² if you reach 25% in lighting, another $0.60/ft² if you reach 15% in HVAC, and another $0.60/ft² if you reach 10% in envelope.

In 2021 that rate increses with inflation to $1.82/ft² or $0.61/ft². In 2022 the rate jumps to $1.88/ft² or $0.63/ft².

What To Do?

Newly constructed commercial buildings and improvements to existing commercial buildings are eligible for the deduction if improvements are made to three distinct categories: the lighting system, HVAC system, and building envelope. There must be a minimum of 50 percent (50%) reduction over the current ASHRAE 90.1 standard. The savings must total a minimum of 50 percent reduction over the current ASHRAE 90.1 standard.

You don't have to qualfy for all three listed above. You can can get a partial credit if any one of the upgrades bove meet the minimum threshold totriggice

Who Qualifies?

Owners and tenants of commercial properties who have built or installed improvements after January 1, 2006, are eligible for the energy-efficient deduction. The owners of these energy efficient improvements can claim the deduction related to a prior year on a current year tax return by requesting an accounting method change on Form 3115.

Special Rule for “Designers” of Government Buildings

A special rule for architects, engineers, or contractors who are the designers of government-owned, energy-efficient buildings llows them to claim the deduction. On a lookback basis, designers would have to amend tax returns.

You May Also Qualify For §45L Tax Credits?

You may also qualify for tax credits using Section 45L Tax Credits if you have low-rise multifamily property. Learn more.