Skip to main content

Site Navigation

Site Search

global Tax

Reduce Net Operating Income for Construction Projects: How You Can Benefit from Section179D

June 11, 2024

Businesses…have you recently constructed or improved energy efficient commercial property (EECBP) or an energy efficient commercial retrofit (EEBRP)? You may be eligible for the Section 179D deduction. The Inflation Reduction Act significantly changes the rules for this deduction. Read on.

Are you up to speed on the Inflation Reduction Act and its impact on Section 179D deduction? Don’t miss out on valuable savings. We have the details here.

What is the Section 179 Deduction?

The deduction has been in place since January 1, 2006, and provides incentives to make certain commercial building property is more energy efficient. The new & improved deduction is available as of 1/1/2023 to owners of commercial buildings and/or designers of EECBP or EEBRP installed in specified tax-exempt entities which now includes an expanded list of qualified organizations.

The energy efficient property installed must be part of the overall: 1. Lighting Systems, 2. HVAC or Hot Water or 3. The building envelope (windows, roofing, etc.).

Organizations with large real estate investments could have substantial tax savings including schools, churches, and hospital entities. The new rules provide additional deduction opportunities including up to approx. $5/sq. ft. if certain requirements are met up from $1.80/sq. ft.

Taxpayers must be cognizant of the new rule complexities including wage & apprenticeship set standards.

What did the Inflation Reduction Act change?

The Inflation Reduction Act:

  • Provides higher deductions for meeting prevailing wage and apprenticeship requirements. If these criteria are met, and the structure attains a 25% decrease in energy and power expenses, the deduction amounts to $2.50 per square foot. Should there be further reductions in energy and power costs, the deduction escalates by $0.10 for every additional percentage point of reduction, up to a maximum of $5.00 per square foot.
    • If these requirements are not met, the Section 179D deduction is $0.50 per square foot for a 25% reduction, with further reductions in energy and power expenses increasing the deduction by $0.02 per square foot, up to a maximum $1.00 per square foot.
  • Removes the existing rules for partial certifications. This is currently $0.60 per square foot for each lighting, HVAC and building envelope.
  • Lowers the minimum required savings in total annual energy and power cost from a 50% reduction to a 25% reduction.
  • Removes the lifetime limit. The deduction can be taken every three tax years (four in some cases).
  • Allows all tax-exempt entities to allocate the Section 179D deduction, including charitable organizations, religious institutions, private schools/colleges, private hospitals, museums, tribal governments and any other 501(c)(3) organization.
June Landry CTA

Stay informed. Get all the latest news delivered straight to your inbox.

Also in Tax Blog

up arrow Scroll to Top