179D Commercial Building Tax Deduction - Frequently Asked Questions

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: Applying 179D

  • The EERE website contains a full list of programs, versions, and requirement: Qualified Software for Calculating Commercial Building Tax Deductions.

  • Yes. To determine the energy and power cost saving for new construction and major upgrades, the Traditional (Modeling) Pathway uses energy models based on Standard 90.1. For upgrades to existing buildings, the historical performance is used for the energy savings calculations, using the Alternative (Measurement) Pathway. 

  • The table below provides the applicable Reference Standard 90.1 based on the date the property is placed in service. Projects that taxpayers begin constructing before 1/1/2023 may apply Reference Standard 90.1-2007 regardless of when the building was placed in service.   

    Date Placed in Service Applicable Reference Standard 90.1 
    After 12/31/2014 and before 1/1/2027 Reference Standard 90.1-2007 
    After 12/31/2026 and before 1/1/2029 Reference Standard 90.1-2019 
    After 12/31/2028 Reference Standard 90.1-2022 

  • The 179D deduction was made a permanent part of the tax code in the Consolidated Appropriations Act of 2021, Public Law 116-260. Changes to eligibility and deduction amounts were made as part of the Inflation Reduction Act and remain permanent but subject to amendments.  

  • Generally property is considered placed in service when it is ready and available for a specific use, regardless of whether or not it is actually used at the time. Please see: IRS Publication 946.

  • Qualification for the tax deduction is based on the building's predicted energy performance, so the predicted levels must meet the specified savings levels. 

  • No, the tax deduction applies to the energy performance of the whole building.

  • The tax deduction is the lower of (1) the value of the asset or (2) the value of the allowable tax deduction. The deduction cannot be for more than the amount that was spent on the equipment and associated installation labor. 

  • Yes, if two or more taxpayers participate in the tax deduction activities on or in the same building; however, the aggregate amount of the 179D deductions allowed cannot exceed the allowable amount for the specific tax deduction.  

  • The entity that is in control of the components as an asset can apply for the tax deduction.  

  • Yes, the deduction is available to owners of specified government and tax-exempt entities: 

    • The United States, a state or its political subdivision, a U.S. territory, or any agency or instrumentality of the foregoing. 
    • A Tribe or Alaska Native corporation, as statutorily defined. 
    • Any organization exempt from tax under Subtitle A, Chapter 1 of the Internal Revenue Code. 

    These entities may allocate the deduction to the person primarily responsible for designing the property. More information can be found on the IRS website.

  • A designer is a person who creates technical specifications for installation of energy efficient commercial building property. A designer may include, for example, an architect, engineer, contractor, environmental consultant, or energy services provider who creates the technical specifications for a new building or upgrade that incorporates energy efficient commercial building property. A person who merely installs, repairs, or maintains the property is not a designer.  

    The building owner has discretion to allocate the full deduction to the primary designer or to allocate the deduction among several designers. This is typically done in exchange for negotiated discounts or services.  

    For additional information on allocating the deduction to a designer, including examples, please see: IRS Notice 2008-40 and IRS Memo 2018-005, but note that these were published before the major changes made to the statute in 2022, which, among other things, expanded the building types that are eligible to allocate the deduction. 

  • All onsite energy consumed should be considered in the calculation of energy intensity. This means that every source of energy consumption within the building—regardless of whether it is generated onsite or purchased from external source—should be accounted for in the overall energy performance metrics. No credit can be claimed for energy that is produced in excess and should not be included in calculations or simulations.

  • No, the same specifications apply to buildings in all locations. Independent of 179D, buildings will still have to comply with their local code requirements. 

  • Standard 90.1-2007 does not cover buildings that are mostly refrigeration, so the cold storage building would fall outside the scope of the Traditional (Modeling) Pathway (applicable for new buildings), but existing buildings of this type would be eligible for the Alternative (Measurement) Pathway. 

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.