Incentives
Section 179D
Definition
A federal tax deduction under IRS Section 179D that allows building owners and (in some cases) designers of energy-efficient commercial buildings to deduct up to $5.00 per square foot for qualifying energy efficiency improvements in HVAC, lighting, and building envelope systems. Enhanced by the Inflation Reduction Act (IRA) of 2022.
Why It Matters for Your Business
Section 179D is one of the most valuable energy tax incentives available to commercial property owners. A 100,000 sq ft building that qualifies for the full deduction can claim up to $500,000 — directly reducing federal taxable income in the year improvements are placed in service.
Frequently Asked Questions
Who qualifies for Section 179D?
Commercial building owners, real estate investment trusts, and certain designers of government buildings. Post-IRA (2023+), the deduction scales based on prevailing wage requirements and energy efficiency improvement percentage. Consult a tax professional and IRS.gov/pub/irs-pdf/p946.pdf.
What is the 179D deduction amount?
Under the IRA, the base deduction is $0.50–$1.00/sq ft for partial systems, up to $5.00/sq ft for whole-building improvements meeting prevailing wage requirements. Amounts are indexed to inflation after 2024.
Is a certification required?
Yes. A qualified individual (licensed engineer or contractor) must certify that the improvements meet IRS energy efficiency standards relative to the ASHRAE 90.1 reference standard.