179D Tax Deduction

Requirements to Claim the 179D Tax Deduction

Claiming the Section 179D deduction requires compliance with both IRS rules and energy performance criteria. Here’s a quick checklist to ensure compliance and maximize your deduction:

• Qualifying Property Improvements: To qualify, upgrades must cut energy usage in lighting, HVAC, hot water, or envelope systems.
• Reference Standard Compliance: Energy savings must exceed ASHRAE Standard 90.1 for the version tied to the project’s start date.
• Energy Modeling & Analysis: A third-party professional must conduct an energy simulation using IRS-approved software to verify performance benchmarks.
• Certification by a Licensed Professional: A qualified engineer or contractor (unaffiliated with the project) must inspect the property and certify energy savings and compliance.
• Proper Documentation: Maintain full records, including design specifications, model outputs, site visit reports, allocation letters (for public buildings), and certification documents.
• Labor Standards for Full Deduction (Post-IRA): For projects placed in service after 2022, prevailing wage and apprenticeship standards must be met to qualify for the full deduction up to $5.00 per square foot.
• Building Age for Retrofits: Retrofit projects must be performed on buildings placed in service at least 5 years before the retrofit plan’s implementation.
• Placed-in-Service Date and Filing: To qualify, the building must have been placed in service on or after January 1, 2006. Taxpayers must file IRS Form 7205 or amend previous returns where applicable.

How Does the Section 179D Tax Deduction Work?

The Section 179D tax deduction incentivizes energy-efficient construction and retrofits by allowing eligible taxpayers to deduct up to $5.00 per square foot of qualifying property. The actual deduction amount depends on how much energy savings the building achieves and whether prevailing wage and apprenticeship standards are met.

The deduction covers upgrades to lighting, HVAC, and building envelope systems. For private building owners, the benefit is direct. For designers of government-owned buildings (such as architects, engineers, or contractors), the deduction can be allocated to them by the public agency through a formal allocation letter.

Benefits of the Section 179D Tax Deduction

Section 179D offers more than just tax relief — it’s a strategic advantage for businesses involved in energy-efficient construction. From reducing your tax burden to improving your sustainability profile, this deduction creates real financial value for both private owners and public project designers.

• Claim up to $5.00/sq ft in deductions for qualified energy-efficient improvements.
• Boosts Cash Flow Immediate tax savings free up capital for reinvestment and business growth.
• Promotes energy-saving upgrades to lighting, HVAC, and building envelope systems.
• Competitive Advantage: Firms can win more projects by offering tax-smart, energy-efficient solutions.
• Retroactive Claims Available: Past eligible projects may still qualify through amended returns.
• Public & Private Project Support: Designers of government-owned buildings can receive the deduction through allocation.
• Enhances Sustainability Reputation: Aligns your brand with green building practices and environmental goals.

Ready to Claim Your 179D Tax Deduction?

Maximize your tax savings on energy-efficient commercial buildings. Contact us today — we’ll take care of the details, from eligibility to certification, so you get the full benefit you deserve.