Deductions for Energy-Efficient Buildings

Improving buildings your business owns or operates to be more energy efficient may help meet your sustainability goals, but it could also increase your cash flow and reduce federal income tax liability.

Section 179D of the US tax code and other legislation provide a financial incentive—up to $1.80 per square foot—to taxpayers that improve the efficiency of their commercial buildings above certain thresholds.

Deductions, however, must be certified by a third-party advisor as required by the tax code.  Confidently pursue deductions and put money back into your business with guidance and certification from our professionals.  

Deduction and Savings Opportunities

The deduction applies to improvements made to a building that exceeds the building energy code standards established by the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) by at least 50%.

The provision applies to reduced energy costs in three areas:

  • Building envelopes
  • Heating, cooling, ventilation, and hot water systems (HVAC)
  • Interior lighting systems

The deduction is calculated based on the square footage of these improvements. The larger the building, the greater the potential for significant tax deductions.

Depending on the level of energy efficiency, potential deductions can include the following:

  • Maximum deduction is $1.80 per square foot for a 50% reduction in total annual energy and power costs with respect to the combined usage of all three systems.
  • Partial deduction is $0.60 per square foot, per system, for reductions of energy consumption related to the interior lighting, HVAC, or envelope.
  • Deductions for lighting are $0.30 to $0.60 per square foot, based on the reduction in lighting power density for lighting watts per square foot when compared to the ASHRAE reference building.

Claim Previous Improvements

It’s not too late to claim deductions for improvements made in previous years as well. Improvements made back to January 1, 2006, are eligible, and benefits can still be captured on a look-back basis.

Claim deductions using an accounting method change when filing your current-year tax return without needing to amend previous returns.

Deduction Eligibility

The following taxpayers are eligible to claim the deduction:

  • Owners and tenants of commercial buildings who have built or installed the improvements
  • Owners of four-story or greater residential buildings who have built or installed the improvements
  • Designers of government-owned energy-efficient buildings, such as architects, engineers, or contractors—claims must be made on a current year or an amended return

Business in many industries can benefit from the deduction, but it can prove especially valuable for the following:

  • Automotive and dealer services
  • Health care
  • Hospitality
  • Manufacturing
  • Real estate
  • Retail

Engineering and Financial Expertise

To help you conduct strong Section 179D studies, our team features a range of professionals including licensed contractors, professional engineers, CPAs, enrolled agents, and those with construction and technical backgrounds. Guidance from our professionals has saved taxpayers millions of dollars through these deductions.

You’ll be supported each step of the way through analyses of your buildings as we model the energy performance of the building—comparing it to a reference building that meets the minimum energy and power cost requirements under the ASHRAE standards.

If the requirements are met, you’ll receive a certification to claim the deduction.

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