Section 179D Tax Deduction

The Section 179D tax deduction is a compelling federal tax incentive available to companies designing and constructing energy-efficient systems in commercial buildings. Specifically, Section 179D is eligible for work performed on three systems; interior lighting, HVAC (heating, cooling, and ventilation) and hot water, and building envelope.

• For properties placed into service in 2022 and prior, a tax deduction of up to $1.80 per square foot is available for the installation of these systems that results in 50% or greater energy savings as compared to a baseline standard. There is eligibility to claim a $0.60 per square foot deduction for upgrades that result in less energy savings. Properties placed into service in 2021 or 2022 are adjusted for inflation, resulting in a higher deduction rate.
• Thanks to the Inflation Reduction Act of 2022, properties placed into service in 2023 or later can now achieve a tax deduction of up to $5 per square foot for achieving a 50% or greater energy savings. There is eligibility to claim a $2.50 per square foot deduction for upgrades that result in a 25% energy savings, with an additional $0.10 per square foot for every 1% increase in savings.

Qualifying Projects

New construction, renovations, and additions to commercial or high-rise residential buildings most often qualify. Either at the time of construction or as part of an upgrade process, energy-efficient building systems must be installed that reduce the property’s energy profile as compared to a baseline standard. The energy reduction requirement varies based on the energy-efficient system that was installed as a part of the project. The baseline standard (ASHRAE 90.1) by which the energy savings are measured changes depending on the year the project was completed.

Who Qualifies?

Many companies can qualify to claim the Section 179D deduction. In addition to commercial building owners, other companies such as architects, engineers, general contractors, construction managers, energy service providers, and specialty contractors (mechanical, electrical, glazing, etc.) may qualify for their work on buildings owned by government and non-profit entities. In other words, the powerful savings potential is also available to those involved in the design and construction industry.

Claiming the Deduction

Our firm has significant experience working with Texas companies across several industries to claim this lucrative tax savings opportunity. Calvetti Ferguson team members have the professional engineering and accounting expertise to conduct the required quantitative and qualitative assessments, provide certifications, and prepare the necessary documents for submission to the IRS. The result is a turnkey process that can result in significant federal tax savings.