Commercial Buildings Energy-Efficiency Tax Deduction (IRC Section 179D)

Program Name: Commercial Buildings Energy-Efficiency Tax Deduction (IRC Section 179D)
Program Sponsor: IRS (Federal)
Program Type:          Tax Deduction
Technology:               Energy Efficiency
Fuel:                Fuel Neutral
Eligibility:                        Owners and Tenants of Commercial Buildings
Cost:  N/A

Description

The 179D Commercial Buildings Energy Efficiency tax deduction enables building owners to claim a tax deduction of up to $1.80 per square foot for installing qualifying systems. Tenants may also be eligible if they make construction expenditures.

Eligibility

Qualifying buildings include: retail buildings, office buildings, industrial buildings, apartment buildings with at least four stories and warehouses.

Owners or tenants claiming the deduction must prove a 50% reduction in energy usage by retaining a Registered Professional Engineer to calculate the property’s energy savings using an approved software from the IRS and Department of Energy’s list of certified software.

How the Program Works

A tax deduction of $1.80 per square foot is available to owners of new or existing buildings who install (1) interior lighting; (2) building envelope, or (3) heating, cooling, ventilation, or hot water systems that reduce the building’s total energy and power cost by 50% or more in comparison to a building meeting minimum requirements set by the most recent ASHRAE Standard 90.1 from no later than two years before the date of construction of the property begins.

Deductions up to 0.60 per square foot are available to owners of buildings who install individual lighting, building envelop, or heating and cooling systems that partially qualify by meeting certain target levels or through the interim lighting rule. The available deductions are summarized as follows:

SUMMARY OF 179D TAX DEDUCTIONS
  Fully Qualifying Property Partially Qualifying Property Interim Lighting Rule
 

Envelope

HVAC and HW Lighting
Savings Requirements* 50%  

10%

15% 25% 25%-40% lower lighting power density (50% for warehouses)
Tax Deduction (not to exceed cost of qualifying property) 1.80 /ft² $0.60/ft² $0.60/ft² $0.60/ft² $0.60/ft² times applicable percentage**

Please see 179D Commercial Building Tax Deduction FAQ, IRS Notice 2006-52, and IRS Notice 2008-40 for more information.

How to Apply

The deduction is taken on the “Other Deductions” line of the taxpayer’s return. Tax returns may be amended going back three consecutive years.

Contact Information

Internal Revenue Service (IRS),
1111 Constitution Avenue, N.W.,
Washington, D.C. 20224
(800) 829-1040.