What Are All The Recent Changes & Updates To The 179D?

The Sec. 179D deduction for energy-efficient commercial buildings was enhanced under the Inflation Reduction Act of 2022. These changes apply to tax years starting after Dec. 31, 2022, and for eligible property placed in service after that date. If you’ve been wondering what exactly all these changes are, here is a quick rundown for you…

Eligibility:

Previously, owners of commercial buildings and designers of governmental buildings were eligible. Now, the list includes governmental entities, tax-exempt organizations, and Indian tribal governments.

Energy-Efficient Property:

Eligible property includes commercial and multifamily buildings at least four stories tall, schools, churches, hospitals, etc. that have been built with, or remodeled with, the requisite energy efficient reductions (see our other posts on this subject).

Amount of Deduction:

The deduction is now based on annual energy savings and adherence to prevailing wage and apprenticeship standards. It starts at 54 cents per sq. ft. for 25% energy savings, with an additional 2 cents per sq. ft. for each percentage point above 25%, up to $1.07 per sq. ft. Meeting prevailing wage standards increases these amounts substantially, up to $5.36 per sq. ft.

Changes from Prior Law:

1 - The baseline annual energy savings requirement was reduced from 50% to 25%.

2 - No lifetime limitation on the deduction; instead, it's limited to the amount taken in the immediate preceding three tax years.

3 - A new alternative deduction for retrofits considers energy usage intensity (EUI) instead of energy cost, making it easier for older buildings to qualify.

Conclusion:

The Inflation Reduction Act's modifications expand opportunities for tax savings in energy-efficient building projects. If you’ve worked on a building, there is a better chance than ever that you qualify, so let Credistry get you that tax deduction you deserve!