Private Commercial Note
For new construction or renovations of privately-owned taxable buildings, only the building owner can claim 179D — not the A&E firm. Select Government or Non-Profit to be eligible for designer allocation.
⚠️ Disclaimer: These estimates are for informational purposes only and do not constitute tax advice. Actual deduction amounts depend on energy modeling certification, IRS compliance, prevailing wage requirements, and other factors. Consult a qualified tax professional before claiming any 179D deduction.
Frequently Asked Questions
Who qualifies as the "designer" for 179D designer allocation?
The "designer" must be the entity that created the technical specifications for the energy-efficient property. This includes the primary architect, mechanical/HVAC engineer, electrical engineer, or energy modeler who performed the ASHRAE 90.1 energy model. The building owner (a government or tax-exempt entity) "allocates" the deduction to the designer since they have no taxable income to use it against.
What changed with the Inflation Reduction Act (IRA) in 2023?
The IRA dramatically increased 179D rates for projects placed in service after December 31, 2022. The base rate increased to $2.15/sqft (up from $1.88/sqft), and the "enhanced" rate for projects meeting prevailing wage and apprenticeship requirements jumps to $5.65/sqft — approximately 3× the pre-IRA maximum. The IRA also expanded eligibility to include non-profit organizations and certain tribal entities in addition to government buildings.
Does the entire building need to qualify, or just one system?
Both options exist. A "partial deduction" applies when only one or two of the three qualifying systems (interior lighting, HVAC/hot water, building envelope) achieve the energy reduction target. The full deduction requires all three systems combined to meet the percentage reduction threshold versus the ASHRAE 90.1-2007 baseline. In practice, most successful claims target the full system deduction.
Can multiple A&E firms on the same project each claim 179D?
No. The building owner can allocate the 179D deduction to only one designer per project (or one per qualifying system, in the case of partial deductions). If multiple firms contributed to different energy systems, the owner must choose which firm receives the allocation — or allocate separately per system. This allocation is documented in a formal letter signed by an authorized representative of the building owner.
What documentation does the IRS require to support a 179D claim?
Required documentation includes: (1) a qualified energy model certified by a licensed engineer demonstrating the required energy reduction vs. ASHRAE 90.1-2007 baseline; (2) a written allocation letter from the government/tax-exempt building owner specifying the amount being allocated; (3) a certification statement from a qualified independent engineer. The deduction is reported on Form 4562 and included with the tax return for the year the property is placed in service.