Understanding the 179D Tax Deduction for Energy-Efficient Buildings
The 179D tax deduction provides a powerful incentive for energy-efficient building design and construction. Originally enacted in 2005 and made permanent in 2021 by the Consolidated Appropriations Act, the 179D deduction allows building owners and designers to claim a federal tax benefit for implementing qualifying energy-saving systems.
What Is the 179D Tax Deduction?
Section 179D of the Internal Revenue Code offers a tax deduction for energy-efficient commercial buildings. The deduction rewards buildings that significantly reduce energy consumption through improvements to:
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Interior lighting systems
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HVAC and hot water systems
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Building envelope (walls, roof, windows, etc.)
Under the current rules, qualifying projects can earn up to $5.00 per square foot depending on energy savings and prevailing wage compliance.
Who Benefits From 179D?
Private commercial building owners benefit directly from the tax deduction. They claim it as a write-off against federal income tax.
Government and nonprofit building owners—who don’t pay taxes—can allocate the deduction to the designer of record, typically an architect, engineer, or design-build contractor.
This provision makes 179D particularly valuable for public and nonprofit projects. Schools, universities, libraries, and affordable housing projects often transfer the benefit to their design partners.
How to Qualify for 179D
To claim the deduction, buildings must meet strict energy efficiency standards. Projects must reduce energy use by at least 25% compared to ASHRAE standards in effect two years before construction starts.
Key Requirements:
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Use energy modeling to compare the proposed building to a baseline model.
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Engage a qualified third-party engineer to certify the project.
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Follow ASHRAE Standard 90.1 guidelines.
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Meet prevailing wage and apprenticeship requirements to qualify for the full deduction amount.
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Allocate the deduction through a formal allocation letter, if the owner is tax-exempt.
Most successful claims involve collaboration early in the design process to integrate energy-saving strategies from the start.
Expected Additional Project Costs
Claiming the 179D deduction often adds costs due to modeling and certification requirements. Expect the following:
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Energy modeling and analysis: $0.05 to $0.15 per square foot
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Third-party verification: $5,000 to $15,000 depending on project size
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Design and coordination time: Variable, depending on system complexity
However, these costs are typically offset by the value of the deduction—often $1 to $5 per square foot returned in tax savings.
How EVstudio Helps Nonprofits and Public Entities Offset Design Costs
EVstudio partners with nonprofits to maximize the value of 179D. Because nonprofits cannot claim the deduction themselves, they can transfer it to EVstudio in exchange for:
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Reduced design fees
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Enhanced energy modeling and compliance support
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Early integration of 179D strategies
This partnership approach allows EVstudio to provide high-performance design at reduced cost to nonprofit clients. The deduction value helps underwrite services while promoting sustainability and energy efficiency.
To learn more about EVstudio’s 179D services, Contact us today!
Final Thoughts
Section 179D is a powerful tool for lowering both tax burdens and energy consumption. It supports efficient design and construction while creating financial benefits for both owners and designers. Nonprofit organizations and public entities can unlock those benefits by partnering with knowledgeable firms like EVstudio.
