The information contained on this page is suitable only for projects claiming the 179D tax deduction for taxable years prior to 2023. This page describes the methodologies and ruleset for 179D in place before the Inflation Reduction Act. Please visit 179D Commercial Buildings Energy-Efficiency Tax Deduction for the methodologies and ruleset for taxable years 2023 and beyond. |
The 179D commercial buildings energy efficiency tax deduction primarily enables building owners to claim a tax deduction for installing qualifying systems in buildings. Tenants may be eligible if they make construction expenditures. For taxable years before 2023, if the system or building is installed on federal, state, or local government property, the 179D tax deduction may be taken by the person primarily responsible for the system's design.
The 179D tax deduction does not apply to other non-tax paying entities, including but not limited to NGOs or churches, unless there exists an energy-as-a-service agreement that is owned by a tax paying company. Please see IRS Notice 2008-40 for additional information. This rule was changed for taxable years 2023 and beyond. Please visit 179D Commercial Buildings Energy-Efficiency Tax Deduction for taxable years 2023 and beyond.
A tax deduction shown in the table below (up to $1.88 per square foot) is available to owners of new or existing buildings who install (1) interior lighting; (2) a building envelope; or (3) heating, cooling, ventilation, or hot water systems that reduce the energy and power cost of the interior lighting, HVAC, and service hot water systems by 50% or more in comparison to a building meeting minimum requirements set by ASHRAE Standard 90.1-2007. Cost savings must be calculated using qualified computer software, which we link to below.
Deductions shown in the table below (up to $0.63 per square foot) are also available to owners of buildings in which individual lighting, building envelope, or heating and cooling systems partially qualify by meeting certain target levels or through the interim lighting rule.
Summary of 179D Tax Deductions Prior to 2023
| Compliance Path | Savings Requirement* | Tax Deduction** | |||
| taxable years before 2021 | taxable year beginning 2021 | taxable year beginning 2022 | |||
| Fully Qualifying Property | 50% | $1.80/ft² | $1.82/ft² | $1.88/ft² | |
| Partially Qualifying Property | Envelope | 10% | $0.60/ft² | $0.61/ft² | $0.63/ft² |
| HVAC and HW | 15% | ||||
| Lighting | 25% | ||||
| Interim Lighting Rule | 25%–40% lower lighting power density (50% for warehouses) | $0.60/ft²*** | $0.61/ft²*** | $0.63/ft²*** | |
* Savings refer to the reduction in the energy and power costs of the combined energy for the interior lighting, HVAC, and hot water systems as compared to a reference building that meets the minimum requirements of ASHRAE Standard 90.1-2007.
** Not to exceed cost of qualifying property
*** The tax deduction is prorated depending on the reduction in Lighting Power Density (LPD). See IRS Notice 2006-52 for the definition of "applicable percentage."
Qualified Software and Resources
Below are links to qualified software and technical references that are required to calculate your tax deduction.
Qualified Software for Calculating Commercial Building Tax Deductions
The U.S. Department of Energy has an established process for qualifying software for modeling systems and buildings. This webpage lists qualifying software.
Energy Savings Modeling and Inspection Guidelines for Commercial Building Federal Tax Deductions for Buildings Placed into Service Prior to 2023
Published by the National Renewable Energy Laboratory, this resource provides guidelines for the modeling and inspection of energy savings required by the statute for buildings and systems placed in service on or before December 31, 2022.
179D Commercial Buildings Energy-Efficiency Tax Deduction
This webpage provides additional resources for taxable years 2023 and beyond.