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Review the energy-efficiency work, project dates and documentation behind a potential commercial building deduction.
Section 179D provides a deduction for qualifying energy-efficient commercial building property. It can apply to eligible new construction, improvements to existing buildings and qualifying retrofit projects. A deduction reduces taxable income; it is not a dollar-for-dollar tax credit.
Section 179D addresses qualifying interior lighting, HVAC and hot-water systems, and the building envelope. A project review should identify the systems involved and the applicable energy standard. Building uses to examine include offices, retail, industrial facilities, warehouses, hotels and residential rental buildings; the property label alone does not establish eligibility.
Eligibility depends on the building, the taxpayer and the work performed. Certain designers of qualifying property in buildings owned by specified tax-exempt entities may receive an allocation; an allocation is not automatic.
Section 179D is unavailable for property whose construction begins after June 30, 2026. Projects beginning on or before that date still need to meet the other applicable requirements.
The traditional modeling pathway compares qualifying commercial building property with a reference building under the applicable ASHRAE standard. Energy savings, certification, construction dates and placed-in-service dates must be established for the specific project.
The alternative retrofit pathway uses measured energy use before and after improvements to a qualifying existing building. Building age, the retrofit plan, baseline and post-retrofit measurement periods need to satisfy the applicable requirements.
The deduction is calculated per square foot and depends on the tax year, certified energy savings and prior deductions. Meeting prevailing wage and apprenticeship requirements may increase the available deduction. Applicable requirements and exceptions need a project-specific review.
Office buildings, retail stores, industrial facilities, warehouses and hotels can present different project facts. Certain residential rental buildings can also warrant review. Property use or ownership alone does not establish eligibility.
For designers, examine whether the building owner is a specified government or tax-exempt entity and whether a valid allocation is available. Schools, hospitals, charitable and other tax-exempt facilities require an ownership and design-role review.
Lighting controls, heating and cooling, hot water, insulation, windows and roofing may be relevant to a project review. Plans, specifications, project dates and certification records should connect the improvements with the claimed energy savings.
Review building ownership, construction and placed-in-service dates, plans, project costs, system specifications and any designer allocation.
Define the energy modeling or measurement work, site evaluation and certification responsibilities before work begins.
Agree on deliverables and coordination with the tax preparer, including any Form 7205 support. Filing and post-filing responsibilities belong in the engagement scope.
We agree on the scope, specialist involvement and deliverables for each engagement.