Tax Incentives
The 179D EECB allows commercial building owners, either new or renovated, to claim tax deductions up to $5.00 per square foot for improving energy efficiency, provided that the projects meet the standards of The American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE).
Overview
The 179D EECB expands the tax deduction for building owners making upgrades for energy efficiency in buildings. It reduces the efficiency standard threshold, which helps more buildings meet the higher ASHRAE standards. It also provides for expanded allocation of the deduction to tax-exempt entities and enhances access to the deduction for retrofit projects.
Status
Available now
This tax code allows commercial building owners to claim tax deductions for qualifying upgrades that improve energy efficiency. The deductions must be for one of three systems: HVAC, interior lighting, and/or building envelopes. The contractor must reduce the total annual energy cost by 25%; partial deductions are allowed.
Tenants may be eligible if they make construction expenditures. 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 is an Energy as a Service (EAAS) agreement that is owned by a tax-paying company.
The 179D tax deduction has been in effect since January 1, 2006, and is now a permanent program enacted as part of the Consolidated Appropriations Act, 2021, signed into law on December 27, 2020.
The base deduction is for $0.50 per square foot with scaled increases for additional efficiency up to $1.00 per square foot. There are bonus deductions available of $2.50 per square foot (if prevailing wage and apprenticeship requirements are met) up to $5.00 per square foot.
The Section 179D deduction is terminated for properties where construction begins after June 30, 2026. This means that projects started after this date will not be eligible for the deduction.
The exact amount of the deduction depends on the total energy and power-cost savings from energy-efficiency improvements.
| Reduction in total annual energy and power costs or EUI | Without prevailing wage | With prevailing wage |
|---|---|---|
| 25% minimum | $0.50/SF | $2,500 |
| +1% | $0.02/SF | $0.10/SF |
| 50% maximum | $1.00/SF | $5.00/SF |
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