Since 2006, the 179D tax deduction, also known as the Energy Efficient Commercial Building Deduction, has provided tax deductions up to $1.80/square foot on qualifying projects for both new construction as well as any renovations done on existing buildings. The passing of the Inflation Reduction Act (IRA) has brought some changes to 179D that present new benefits and opportunities to create lasting budget and greenhouse gas reductions alike.
Before the enactment of the IRA, only government entities and for-profit companies and organizations were eligible for the Energy Efficient Commercial Building Deduction and of these, only government buildings were allowed to allocate the earned deduction. Starting in 2023, that allocation eligibility will now be extended to tax-exempt entities such as non-profits, religious institutions, hospitals, and private schools and universities. These organizations can now assign the 179D deduction to a designer (i.e. contractor, engineer, or architect) in order to lower the overall cost of any qualifying project.
In addition, the IRA removed the lifetime limit associated with the 179D reduction as it can now be taken every 3 years. The deduction itself has been increased to $5.00 per square foot when at least a 25% reduction in energy is achieved through interior lighting, building envelope, or HVAC/water projects.
These new rules will be effective for any project placed in service on or after January 1, 2023, with deductions to be available on taxes in 2024. These rules enable schools and hospitals to take advantage of the 179D program by assigning project rights to their vendor and obtaining reduced project costs. For more information, please feel free to contact Claire Wilson at [email protected].
