179D Energy Efficiency

New IRA 179D deductions available for commercial buildings. It’s a tremendous help to businesses that install energy saving alternatives, like lighting retrofits. Under the new regulations, the maximum tax deduction will jump to $5.00 per square foot of upgraded space in 2023. That’s a huge increase from the previous version of law, which currently has deductions at $1.88 per square foot in 2022 (but is now set at $2.00 per square foot).

Qualifications for commercial building tax deductions

There are several qualifications your business needs to meet in order to receive the tax deductions outlined in Section 179D.

As a general rule, EPAct179D applies to commercial buildings, including the following:

Retail buildings
Apartment buildings four stories or higher
Office buildings
Warehouses
Industrial buildings

To get the deduction, energy and power costs need to be reduced by 25% against the ASHRAE standard. That means it’s easier to qualify. Currently, projects must reduce energy by 50% to qualify for the full deduction. A 25% reduction will yield a $2.50 per square foot tax deduction. For every 1% of additional reduction, an addition $.10 per square foot will be awarded.

Partial deductions are also available based on the project and energy reduction. Even energy reductions of 10% can equal major savings.

The building owner qualifies for the deductions, unless the building is owned by the federal, state, or local government. In that case, the company responsible for the system’s design may take the deduction.