§179D Energy efficient commercial buildings deduction

Summary

Allows a tax deduction for the cost of energy-saving equipment put into use in a commercial building during the tax year. The yearly deduction for a building is capped at (the “applicable dollar value” times the building’s square footage) minus deductions already claimed for that building in the three prior tax years. The applicable dollar value starts at $0.50 per square foot and rises by $0.02 for each percentage point the building’s total annual energy and power costs are certified to beat a 25% savings threshold, but it cannot go above $1.00. For certain higher-performing installations, those numbers are $2.50, $0.10 per point, and a $5.00 cap. The Treasury will set rules for how savings are calculated and verified, require certified calculations using approved software, require inspections by approved professionals, and require that workers installing the property be paid prevailing local construction wages. The deduction reduces the tax basis of the property. Tax-exempt owners can let the designer claim the deduction. For planned retrofits, a taxpayer can elect a deduction when a final certification shows at least a 25% reduction in energy use intensity; that deduction is limited by a similar formula or by the cost basis of the retrofit property. Dollar amounts in the cap are adjusted for inflation for taxable years after 2022 using the cost-of-living formula in section 1(f)(3) with “calendar year 2021” substituted for “calendar year 2016.” The Treasury can update rules for new technologies and can recapture the deduction if the energy plan is not fully carried out. The rule does not apply to property whose construction begins after June 30, 2026. Defined terms (one line each): Energy efficient commercial building property — depreciable equipment installed in U.S. buildings (lighting, HVAC/hot water, or building envelope) certified to cut total annual energy and power costs by at least 25% versus a reference building. Reference Standard 90.1 — ASHRAE/IES Standard 90.1-2007 or a later version officially adopted for this rule. Energy efficient building retrofit property — depreciable equipment installed under a qualified retrofit plan. Qualified retrofit plan — a written plan by a licensed professional that expects at least a 25% reduction in energy use intensity and provides required certifications. Qualified building — a U.S. building first placed in service at least 5 years before the retrofit plan. Qualifying final certification — the post-installation certification showing energy use intensity is 75% or less of the baseline. Energy use intensity — annual measured site energy use intensity in British thermal units under Treasury rules. Qualified professional — a licensed architect or licensed engineer meeting Treasury standards.