The Section 179D tax deduction is a tax incentive for energy-efficient commercial buildings. It allows building owners to claim a tax deduction for the cost of energy-efficient improvements to their buildings. The deduction is based on the amount of energy that the improvements are expected to save.
| 25% Reduction | Each % point | 50% or greater |
| $2.50/SF | $0.10/SF | $5.00/SF |
Table 1 Tax deduction structure based on savings.
To be eligible for the Section 179D tax deduction, the building must meet the following requirements:
- It must be a commercial building.
- It must be located in the United States.
- It must be placed in service after December 31, 2005.
- It must have a total floor area of at least 5,000 square feet.
- Energy saving must exceed ASHRAE 90.1 2007 by minimum of 25%-50%
- Verification must be performed by a professional engineer – Energy model and site visit.
The amount of the Section 179D tax deduction is based on the following factors:
- The size of the building.
- The energy savings achieved by the improvements.
- Whether or not prevailing wage requirements are met and supporting evidence are provided.
As shown in Table 1, The maximum deduction is $5.00 per square foot. However, the deduction is reduced if the energy savings are less than the minimum required savings.
For example, if a building is 100,000 square feet and the improvements save 25% of the building’s energy use, the deduction would be $250,000. However, if the improvements are 35% of the building’s energy use, the deduction would be $350,000.
The Section 179D tax deduction is a significant tax incentive for energy-efficient commercial buildings. It can help building owners to save money on their taxes and to improve the energy efficiency of their buildings.
In many states, the Energy code is an updated edition of ASHRAE 90.1. As a result, if a project’s outcomes are compared to those of Ashrae 90.1 2007, it is highly probable that the project will qualify for the 179D tax deduction. The table below displays the various states that surpass the ASHRAE 90.1 2007 energy savings criteria and by how much.
| State | Energy Savings | State | Energy Savings | State | Energy Savings |
| Alabama | 26% | Maryland | 28% | Ohio | 9% |
| California | 34% | Massachusetts | 33% | Oregon | 30% |
| Connecticut | 27% | Michigan | 27% | Pennsylvania | 29% |
| Delaware | 29% | Minnesota | 24% | Rhode Island | 27% |
| District of Columbia | 29% | Montana | 27% | Tennessee | 10% |
| Florida | 26% | Nebraska | 28% | Texas | 26% |
| Georgia | 27% | Nevada | 24% | Utah | 26% |
| Idaho | 25% | New Hampshire | 25% | Vermont | 33% |
| Illinois | 28% | New Jersey | 30% | Virginia | 27% |
| Iowa | 11% | New Mexico | 25% | Washington | 31% |
| Kentucky | 12% | New York | 28% | West Virginia | 21% |
| Maine | 23% | North Carolina | 22% | Wisconsin | 24% |
Table 2 States exceeding ASHRAE 90.1 2007 energy savings requirements.
If you are considering making energy-efficient improvements to your commercial building, you should consult with a tax advisor to determine if you are eligible for the Section 179D tax deduction.
Here are some of the benefits of the Section 179D tax deduction:
- It can help you save money on your taxes.
- It can help you improve the energy efficiency of your building.
- It can help you reduce your carbon footprint.
- It can make your building more attractive to tenants and investors.
If you are a commercial building owner, you should consider taking advantage of the Section 179D tax deduction. It is a great way to save money, improve the energy efficiency of your building, and reduce your carbon footprint.