179D Energy Deduction

Energy-Efficient Construction That Pays You Back
TALK TO A TAX EXPERT
Partners each with 20+ YEARS of Industry Experience

Over $1 Billion
in Tax Savings

Cost Segregation Analyses Performed

1000s
of 179D
Studies
Performed

Experience of cost segregation in all 50 states

Multidisciplinary

Team
(Attorneys, Tax Professionals, Engineers) 

PRECISE | RESPONSIVE | TRUSTWORTHY

01

What is the 179D Tax Deduction?

  • Federal incentive that rewards energy-efficient construction and design 
  • Available for newly constructed, renovated, or expanded properties 
  • Deduction is per square foot – the larger the property, the larger the benefit 
  • The Inflation Reduction Act (IRA) increased the maximum benefit to $5.00/SF (with adjustment for inflation) 

    02

    Who Can Claim the 179D Tax Deduction?

    • Commercial building owners or tenants 
    • Owners of residential rental properties that are 4 or more stories above grade
    • Real estate investors and developers 
    • Designers of government buildings or properties owned by tax-exempt entities (architects, engineers, contractors, environmental consultants) 

      03

      Why Consider the 179D Tax Deduction?

      • Lucrative, permanent energy-efficient deduction that can be incorporated into planning 
      • Under new legislation, incentive may be claimed every three or four years (assuming property continues to meet or exceed relevant energy standards) 
      Capstan University Logo

       179D for Owners & Developers

      • Must demonstrate energy cost savings vs. a benchmark facility by impacting HVAC, lighting, or building envelope
      • A qualified third party must perform an energy analysis, inspect the property, and provide certification
      • May claim incentive on newly constructed,
        renovated, or expanded properties
      • Best claimed in year of construction but may be claimed retroactively
      • For projects in which construction began on/after 1.30.2023, must meet Prevailing Wage and Apprenticeship Requirements to maximize benefit
      Custom in-house Presentation

      179D for Designers

      • Architects, engineers, and designers may claim the Deduction when working on government buildings or properties owned by tax-exempt entities:
        • K-12 Schools and Universities
        • Non-Profits
        • Hospitals
        • Religious Institutions
        • Military Bases
        • Tribal-Owned Properties
      • Building owner will allocate Deduction to designer
      • There can be more than 1 qualifying design professional on a project
      • Best used in a timely filing scenario, in a look-back situation would need to amend return

      Interested in a Free Estimate of Benefits for Your 179D Study?

      ASCSP Certified Professionals on Staff

      179D Tax Deduction Case Studies  

      New Construction: Hotel

      Energy Saving

      LED lighting 

      Efficient

      Additional roof and wall insulation

      Green

      “Green” HVAC and controls

      Affected Area

      161,843 SF 

      179D Tax Deduction

      $877,478 (max benefit of $5.36/SF)

      New Construction: Midrise Multifamily Complex

      Energy Saving

      LED lighting 

      Efficient

      Variable Refrigerant Flow (VRF) heat pump units

      Rooftop Units

      Gas-fired rooftop units (RTUs) for common areas

      Affected Area

      124,468 SF 

      179D Tax Deduction

      $622,340 (max benefit of $5.36/SF)

      Renovation: Part of State University System – Claimed By Designer 

      Energy Saving

      Electrical construction and engineering firm designed and installed new controls for student gathering spaces and library

      Affected Area

      33,960 SF

      179D Tax Deduction

      $182,026 (max benefit of $5.36/SF)

      01

      Efficient Report Delivery

      • 6 weeks for commercial building owners 
      • 3-6 months for designers 

      02

      Subject Matter Experts

      • Team has extensive understanding of Construction, Sustainability, Building Energy Codes and Standards, Energy-Efficient Design, Alternative Power Sources, and Energy Incentives
      • Employ energy modeling specialists 

      03

      Compliant and Defensible

      • Inspections conducted by properly licensed, qualified individual according to NREL guidelines 
      • DOE-approved software is employed 
      Cost Segregation Analyses Performed

      179D Deduction FAQs  

      What is the 179D Tax Deduction for Commercial Buildings? 

      The 179D Tax Deduction is a federal incentive that rewards contractors for completing ground-up energy-efficient construction projects and performing energy-efficient retrofits. The 179D Energy-Efficient Deduction may be taken on energy-efficient commercial buildings as well as residential rental buildings that are at least 4 stories tall.  

      Property owners must demonstrate a reduction in energy consumption versus the benchmark standard. 

      The Energy-Efficient Tax Deduction may also be claimed by engineers, architects, or other design professionals. 

      What are the Benefits of the 179D Tax Deduction? 

      Currently, the benefit of the Energy-Efficient 179D Deduction depends on the energy efficiency increase over the baseline and on whether a contractor meets prevailing wage and apprenticeship (PWA) requirements. The current maximum benefit is $5.00/SF adjusted for inflation. 

      Before the passing of the Inflation Reduction Act, benefit was calculated differently. There were three potential areas of benefit – HVAC, building envelope, and lighting. Each area could provide benefit of $0.63/SF, for a potential maximum deduction of $1.88/SF. 

      What Exactly are the Prevailing Wage (PW) Requirements?

      The “Prevailing Wage Requirements” state that contractors must pay mechanics and laborers no less than the prevailing wages required for federal work. The exact wage will vary by location and job description. www.sam.gov lists prevailing wages for most locations and job descriptions and Notice 2022-61 states that taxpayers can rely on wages listed there.  

      The PW requirements apply to facilities for which construction begins on/after 1/30/2023. If construction began prior to this date, the project may be “grandfathered” in, and able to claim higher benefit rates without needing to meet PW requirements.  

      What Happens if my Project Doesn’t Meet Prevailing Wage Requirements?

      Unfortunately, if your project doesn’t meet PW requirements, the potential benefit will decline significantly. Instead of claiming $5.00/SF (plus inflation), you can only claim $1.00/SF (plus inflation.)   

      Here’s an example – a 4-story suburban garden apartment complex was recently constructed, with a total square of footage of 138,761. It demonstrated enough energy savings to be eligible for the maximum deduction value. 

      How Can I Claim the 179D Tax Deduction? 

      The property must be evaluated by an engineer or contractor licensed in the jurisdiction in which the building is located. Additionally, modeling software will be employed to simulate building energy consumption and ensure that it meets established thresholds for efficiency. 

      The IRS released a new form for claiming the 179D Tax Deduction (Form 7205) in February 2023. However, the IRS is likely to roll out an even newer version of this form that may require demonstrated compliance with PWA requirements. 

       

      How Can I Qualify for the 179D Deduction?

      If you own energy-efficient commercial real estate — or design energy-efficient properties for a government or tax-exempt entity — you may qualify for the 179D Deduction. Let’s talk about your situation — we’re here to help.