Building owners who place in service energy efficient commercial building property (EECBP) or energy efficient commercial building retrofit property (EEBRP) may be able to claim a tax deduction. An increased deduction may be available for increased energy savings or meeting prevailing wage and apprenticeship requirements. The deduction is allowed under Internal Revenue Code (IRC) Section 179D. It was expanded under the Inflation Reduction Act of 2022. On this page Who is eligible Buildings that qualify Amount of the deduction for 2023 and after Amount of the deduction for 2022 and before ASHRAE standards Who is eligible Beginning January 1, 2023, the deduction is available to: Owners of qualified commercial buildings Designers of EECBP/EEBRP installed in buildings owned by specified tax-exempt entities, including certain government entities, Indian tribal governments, Alaska Native Corporations, and other tax-exempt organizations The deduction was previously available only to owners of qualified commercial buildings and designers of EECBP installed in buildings owned by certain government entities. Buildings that qualify EECBP must be installed on or in a building that is located in the U.S. and within the scope of a specified Reference Standard 90.1 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) and the Illuminating Engineering Society of North America. It must be property for which depreciation or amortization is allowable, and installed as part of: the interior lighting systems, the heating, cooling, ventilation, and hot water systems, or the building envelope. It must be certified as being installed as part of a plan to reduce the total annual energy and power costs for the above systems by 25% or more in comparison to a reference building meeting the minimum requirements of Reference Standard 90.1. EEBRP must be installed on or in a qualified building as part of: the interior lighting systems; the heating, cooling, ventilation, and hot water systems; or the building envelope. A qualified building is a building located in the U.S. and originally placed in service not less than 5 years before the establishment of a qualified retrofit plan for the building. EEBRP must be property for which depreciation or amortization is allowable, and it must be certified as meeting certain energy saving requirements. Amount of the deduction for 2023 and after For property placed in service in 2023 and after, the deduction for EECBP equals the lesser of: The cost of the installed property OR The savings per square foot calculated as: $0.50 per square foot for a building with 25% energy savings Plus $0.02 per square foot for each percentage point of energy savings above 25% Up to a maximum of $1.00 per square foot for a building with 50% energy savings Expenses deducted in the prior 3 years (4 years for an allocated deduction) reduce the maximum deduction before computing the current-year deduction. Find the applicable dollar values used to determine the maximum allowance of the deduction for property placed in service after 2023: Tax inflation adjustments for tax year 2024 Tax inflation adjustments for tax year 2025 Prevailing wage and apprenticeship bonus Beginning in 2023, if local prevailing wages are paid and apprenticeship requirements are met, an increased maximum deduction applies. The maximum amount increases to 5 times the savings per square foot amount. Find details in Notice 2022-61. Amount of the deduction for 2022 and before For property placed in service before January 1, 2023, the deduction is capped at $1.80 per square foot (indexed for inflation after 2020) for buildings with 50% energy savings. A partial deduction is available on certain property. All expenses deducted in prior years are applied against the cap before computing the current-year deduction. Find detailed requirements for property placed in service before January 1, 2023: Notice 2012-26 Notice 2006-52 Notice 2008-40 ASHRAE standards Under the Inflation Reduction Act, energy savings must be measured against the latest ASHRAE standard affirmed by the Secretary of Treasury at least 4 years before the property is placed in service. For buildings that begin construction on or after January 1, 2023, and have energy efficient property placed in service on or after January 1, 2027, ASHRAE Standard 90.1-2019 applies. For buildings that begin construction before January 1, 2023, or are placed in service before January 1, 2027, ASHRAE Standard 90.1-2007 applies. For details, see Announcement 2024-24. Related Credits and Deductions Under the Inflation Reduction Act of 2022 IRC 179D Energy Efficient Commercial Buildings Deduction Process Overview PDF
