The 179D tax deduction is an engineering-based tax deduction enacted to help reduce energy consumption in commercial buildings as part of the 2005 Energy Policy Act. Qualifying commercial spaces can receive a tax credit of up to $1.80 per sq. ft. Qualified recipients must show a significant reduction in energy costs, including lighting, heating, cooling and/or with respect to the building’s envelope components. Partial energy reduction by adjusting or retrofitting changes to the lighting, HVAC or envelope systems alone qualifies for a $0.60 tax credit per sq. ft. Commercial spaces that can satisfy a 50% savings in energy and power costs can qualify for the full tax credit based on the standards set forth in the 2006 International Energy Conservation Code (IECC). At least 10% of the energy savings associated with heating and cooling must be derived from attributes associated with the building envelope (roof, walls, windows, etc.). Those who satisfy a lower threshold of savings (less than 50% improvement) can qualify for a portion of the tax credit. Accredited energy rating tests, like those offered by Blue Sky Energy, can identify if and when these metrics are met.

Ways to reduce energy costs include changing insulation, internal heat gains from lights and appliances, window coverings, exterior building color, mechanical ventilation, size of windows, exterior shading, climate zone, duct location, and unit’s air tightness, just to name a few.

Architects, engineers and other designers of government-owned buildings may be eligible to claim the 179D Tax Deduction for the design of either newly constructed or retrofitted buildings. For government-owned buildings, those of which are not eligible for the tax deduction, an Energy Service Company is eligible to take the deduction instead. Their consulting and design of the building makes them eligible to the deduction, and assists in lowering their proposal to make their bid more competitive.

Certification Requirements:

  1. Testing must be performed with a Department of Energy Approved Software
  2. Inspection must be performed after the property is in service
  3. Certification must be completed by a qualified engineer or contractor with jurisdiction in the area
  4. Entity owner must maintain the certification in their records to establish the entitlement
  5. Valid for new construction, or buildings with improvements after 2006.