This webpage summarizes answers to frequently asked questions about technical aspects of Section 179D of the Internal Revenue Code for Commercial Building Tax Deductions. The U.S. Department of Energy Building Technologies Program worked with the National Renewable Energy Laboratory to develop this content. It will be revised periodically.
This information is not meant to be a substitute for professional guidance or the statute itself; please consult a tax professional and refer to the Section 179D statute.
Traditional (Modeling) Pathway: General
General information can be found on the IRS website, Energy Efficient Commercial Buildings Deduction, or on the DOE website at 179D Energy Efficient Commercial Buildings Tax Deduction.
For more details, please see:
The scope of the standard includes certain new buildings and their systems, new portions of buildings and their systems, and new systems and equipment in existing buildings. The following building types are within the scope of Standard 90.1:
- Buildings used primarily for commercial purposes. Building types that do not qualify for this condition may potentially qualify for the 45L credit.
- Buildings used for industrial purposes, although industrial process systems are excluded from the Standard (and therefore from the 179D tax deduction).
- Multifamily residential buildings of four or more stories, including dormitory buildings.
- Buildings that have been converted from other uses to primarily commercial use.
Please reference the applicable Standard 90.1 version for comprehensive set of guidelines.
Single-family homes, multi-family homes of three stories or fewer, manufactured houses, buildings that do not use either electricity or fossil fuels, and equipment or portions of building systems that use energy primarily for industrial, manufacturing, or commercial processes do not qualify.
No, master meters are outside of the scope of the statute, which requires the energy efficient property to be installed as part of the interior lighting systems, the heating, cooling, ventilation, and hot water systems, and/or the building envelope.
Dormitories with more than three stories above grade are within the scope of the tax deduction. Dormitories with fewer than three stories above grade are ineligible.
Traditional (Modeling) Pathway: Licensed Professionals
The law and IRS Notice 2006-52 state that the documents must be certified by a licensed contractor or engineer in the jurisdiction where the building is located. The documents may be prepared by a nonqualified person and then reviewed and signed by a qualified individual.
Under the Interim Lighting Section of IRS Notice 2008-40, Section 5.02(a) states: "Field inspections of the building were performed by a qualified individual after the energy efficient lighting property has been placed in service." Here, qualified individual is defined as a licensed contractor or engineer in the jurisdiction where the building is located.
The licensed contractor or engineer must be properly licensed in the same jurisdiction as the building, and not be related (within the meaning of 45(e)(4)) to, or an employee of, the taxpayer claiming the deduction under 179D.
Traditional (Modeling) Pathway: Documentation
The taxpayer claiming the tax deduction must obtain certification of the requirements from a qualified individual. The certification must contain the name, address, and phone number of the qualified individual; the address of the building; and a statement of performance matching the statements in IRS Notice 2006-52.
The energy models can be documented by reports generated by the modeling software, by manually completing the compliance forms from the Standard 90.1 User’s Manual, or on equivalent forms. The list of approved software is available from DOE at Qualified Software for Calculating Commercial Building Tax Deductions. The Standard 90.1-2007 compliance forms can be downloaded from ASHRAE's website.
Traditional (Modeling) Pathway: Specific Technical Questions and Definitions
Some cities do not have simulation weather files. The weather file should be selected from the location that most closely represents the typical weather conditions at the location of the taxpayer’s building; this may or may not be the weather file for the location closest to the taxpayer’s building. A file location site that has the most similar mean annual temperature and annual temperature range should be selected over sites that are closer but have less representative temperature average and range.
ASHRAE defines process loads as “the energy consumed in support of manufacturing, industrial or commercial processes not related to the comfort and amenities of the building's occupants.” Some process loads include computers, kitchen equipment, refrigeration, and elevators. Process loads are included in the energy simulations, but not in the energy cost savings calculations for achieving the reductions.
The reference/baseline model is a computer simulation model that matches the taxpayer’s building, except that the interior lighting systems, HVAC, service hot water, and building envelope comply with the minimum requirements of Standard 90.1 Appendix G. The version of 90.1 is 2007 for buildings placed in service prior to Jan. 1, 2027, 90.1-2019 for buildings placed in service between Jan. 1, 2027, and Dec. 31, 2028, and 90.1-2022 for buildings placed in service after Dec. 31, 2028.
A proposed building model is a computer simulation model that is identical to the reference/baseline building model except for the systems that are qualifying for the tax deduction. The systems qualifying for the tax deduction shall match the systems in the building.
Power costs are defined as the monthly peak demand charges and associated taxes and fees.
The savings are calculated based on the total energy and power costs for the building minus the plug and process loads (i.e., HVAC, service hot water, and lighting only).
There is no size limitation on the HVAC system for the 179D deduction.
Simply replacing the controls will not qualify for the 179D tax deduction. Qualification for the 179D tax deduction is based on the energy and power cost savings in a building relative to a reference building that meets the minimum requirements of ASHRAE Standard 90.1 and not the existing building. The energy and power cost savings must be estimated with detailed hourly energy simulations with a qualified software following the rules in ASHRAE Standard 90.1-2007 Appendix G. These modeling rules require that the reference building model have the same control sequences and schedules as the proposed building model except in cases where the proposed building has nonstandard efficiency measures such as lighting controls for daylighting or HVAC controls for demand control ventilation or natural ventilation. In each of these cases, the energy and power cost savings must be proven through detailed hourly simulations in order to qualify for the 179D tax deduction.