As tax season rolls around, will you be able to claim an energy-efficient commercial buildings deduction? Under Internal Revenue Code (IRC) 179D, building owners may be eligible to claim tax deductions if their building meets certain energy efficiency markers. These deductions can generate significant tax savings, especially when combined with other energy-focused tax reduction opportunities, like those in the Inflation Reduction Act (IRA) or with Energy Community Tax Credits.
Qualifying For An Energy Efficient Commercial Buildings Tax Deduction
For a commercial building owner to qualify for this specific tax deduction, their building(s) must fit inside one of two categories. It needs to be an:
- Energy Efficient Commercial Building Property (EECBP)
- Energy Efficient Commercial Building Retrofit Property (EEBRP)
The decision about which category fits a building is determined by the age of the building and by the installation and use of:
- Interior lights
- HVAC
- Hot water systems
or - The building envelope
For a building to be eligible to receive business tax credits for energy efficiency, each of these areas must work together to reduce the energy used in the building by 25% (or more). To measure this reduction, the IRS uses ASHRAE Standards.
These are the baseline levels that must be met. Before assuming that they are eligible, building owners should visit the relevant federal and local tax agency websites. They can find the information there to ensure they have all of the most relevant and timely criteria to make an energy efficient commercial buildings deduction on their taxes.
Energy Efficient Commercial Building Deduction
The amount you can claim as a business energy efficient tax credit will depend on two things.
- The “level” of energy efficiency your building is achieving.
- The year your efficiency program started.
Starting Pre-2023
Buildings that were placed into an energy efficiency program prior to January 1, 2023, will have their deduction capped at $1.80 per sq. ft.
2023 and Beyond
Buildings that entered into energy efficiency programs from January 1, 2023, up to the present day, have two options for calculating what their energy-efficient commercial buildings tax deduction could be. They will need to choose the lower figure from:
- The cost of the building.
- The total of $.50 per sq. ft. in the areas where energy efficiency savings are at 25% and an additional $.XX per sq. ft. for every percentage point above 25%. (Additional amounts vary based on the taxable year.)
Additional credit can be earned for meeting prevailing wage and apprenticeship provisions.
Case Study |
A 100,000 sq. ft. commercial office space opened in 2023. The building has exceeded the 25% energy efficiency benchmark. The building owners have also met all necessary apprenticeship and prevailing wage requirements. |
The owners were able to deduct $5.64 per sq. ft. on their 2024 taxes. This equals a total tax deduction of $565,000 in 2024. |
Prepare For An Energy Efficient Commercial Building Deduction With ODIN
If you are not capturing a business energy-efficient tax credit for 2024, you should be working now to benefit from it in 2025. And ODIN can help.
With remote site management and cloud access capabilities, ODIN can help you monitor your building's energy efficiency. You’ll be able to make sure you are on track to receive tax credits or see quickly where there are areas of concern that need to be addressed.
ODIN can also help you monitor energy efficiency by:
- Managing multiple sites at once
- Capturing historical energy use trends
- Monitoring HVAC systems
Connect with ODIN today so you don’t miss out on your energy-efficient commercial buildings deduction in 2025.
