179D expansion provides another opportunity for businesses to save on efficiency improvements

Sep 14, 2022
by
Allison Rodriguez
commercial building

The recently passed Inflation Reduction Act (IRA) includes incentives aimed at improving energy efficiency in Minnesota homes and businesses. One potentially significant incentive for businesses is the extension and expansion of the 179D Energy Efficient Commercial Building Deduction (179D). Beginning January 1, 2023, commercial buildings can benefit from increased 179D tax deductions for efficiency improvements thanks to the IRA. Read on to learn more about the current 179D deductions and the changes coming in 2023.

Who can benefit from 179D deductions?

  • Commercial building owners
  • Engineers, architects, and design contractors of government owned buildings

What are the 179D requirements and deductions for 2022?

  • To qualify, newly constructed or retrofitted buildings must have equipment and system improvements that reduce energy use such as
    • Interior lighting
    • Building envelope
    • HVAC
    • Hot water systems
  • Efficient systems and equipment must reduce energy and power costs by 50% or more compared to minimum requirements set by ASHRAE Standard 90.1.
  • Eligible building owners and designers of government buildings can deduct up to $1.88 per square foot.

What’s changing in 2023?

  • Starting January 1, 2023, the energy reduction requirement will decrease from 50% to 25%.
  • Energy reduction will be based on a whole-building analysis rather than equipment- or system-specific improvements.
  • Higher deductions can be claimed for meeting prevailing wage and apprenticeship requirements.
    • The deduction will be $2.50 per square foot if both prevailing wage/apprenticeship and the 25% energy reduction requirements are met.
    • The deduction will increase by $0.10 up to $5.00 per square foot for each additional percentage of reduction over 25%.
  • When prevailing wage and apprenticeship requirements are not met
    • The deduction will be $0.50 per square foot for a 25% energy reduction.
    • The deduction increases by $0.02 up to $1.00 per square foot for each additional percentage of reduction over 25%.
  • Nonprofits, tribal properties, and real estate investment trusts (REITs) will be eligible for 179D deductions.

The information above is a high-level overview of the 179D deduction. Please consult a tax professional to determine how 179D applies to your organization.

CEE’s commercial team provides independent energy consulting for every building and budget. Learn more about our commercial energy consulting and rebate programs.