What is the 179D Tax Deduction?
The 179D tax deduction, also known as the Energy Efficient Commercial Buildings Deduction, is a federal incentive designed to encourage energy-efficient construction and retrofits in commercial buildings. Initially introduced as part of the Energy Policy Act of 2005, this deduction allows building owners or designers to deduct a portion of the costs associated with energy-efficient improvements from their taxable income.
For buildings placed in service in 2024, the deduction can be as high as $5.00 per square foot for qualifying energy-efficient measures. This can translate into significant tax savings, especially for large commercial projects. To qualify, the building must demonstrate substantial reductions in energy use intensity (EUI) compared to a baseline established by the ASHRAE 90.1 standard.
The Role of Energy Modeling in 179D
Energy modeling is at the heart of the 179D deduction process. It’s a sophisticated simulation process that allows designers and engineers to predict a building’s energy consumption based on its design, systems, and operational characteristics. Here’s why energy modeling is essential: