Updated 179D Tax Benefit for Energy-Efficient Benefits | Barnes Dennig

Updated 179D Tax Benefit for Energy-Efficient Benefits

Published on by Jonathan Venturini in Tax Services

Updated 179D Tax Benefit for Energy-Efficient Benefits

If you own an energy-efficient commercial building, you have the opportunity for significant income tax breaks, based on the extension of the Tax Cuts and Jobs Act (TCJA) section 179D.

The Energy-Efficient Commercial Buildings deduction was part of TJCA in 2017, and it was previously extended through December 31, 2020, then extended again by the Inflation Reduction Act (IRA) of 2022. But this time, in addition to the extension, there are significant increases to the deduction that create more opportunities for significant tax savings for those who qualify.

179D rules through 2022

A tax deduction is available for new or existing buildings that install interior lighting, a building envelope, or heating, cooling, ventilation, or hot water systems that reduce the energy and power cost of the interior lighting, HVAC, and service hot water systems by 50%.

The 179D deduction allows building owners and the designers of government-owned buildings a tax deduction for buildings placed in service for a value of:

  • 2020 – $1.80 per square foot
  • 2021 – $1.82 per square foot
  • 2022 – $1.88 per square foot

2023 changes – expansion and increased maximum deduction

The IRS has expanded the 179D deduction to allow more entities to qualify.  Before 2023, only building owners of qualified commercial buildings and the designers of buildings owned by government entities qualified. Now eligibility includes designers of an Energy Efficient Commercial Building Property (EECBP) or Energy Efficiency Building Retrofit Program (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 energy reduction requirement also decreased from a necessary 50% reduction in energy and power costs to a 25% reduction, making the deduction accessible for many more entities.

The amount of deduction for 2023 also increased significantly – to nearly three times what it was for 2022. There’s now a maximum deduction amount of $5.36 per square foot as opposed to the prior maximum amount of $1.88 if the prevailing wage requirements are met. If the prevailing wages aren’t met, the deduction maximum drops to $1.07 a square foot.

How to qualify for the 179D deduction

The 179D deduction can be taken for energy-efficient commercial building property placed in service during all open tax years. The look-back period is typically three years. There are opportunities to either amend a tax return or file a change in accounting method – and it’s important to know the IRS requires an independent, third-party energy tax study.

Make the most of the 179D deduction potential

If you believe your business might qualify for this updated and increased 179D deduction, connect with us – our professionals can help you navigate the landscape and identify the best strategy for maximizing the 179D deduction if it applies. We can help you minimize your tax liability with a 179D certification for your responsible, energy-efficient property. Get in touch, and let’s talk. As always, we’re here to help.


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