Increased 179D Benefits Under the 2022 Inflation Reduction Act
By Chris O’Neal, Senior Manager, Tax & Business Services
The Inflation Reduction Act of 2022 was signed into law by President Biden on August 16, 2022. Included in the landmark legislation were changes to a key deduction that will provide a significant benefit for commercial real estate owners.
The Energy Efficient Commercial Buildings Deduction (179D) encourages commercial building owners to install energy-efficient systems by providing an immediate deduction for costs related to these installations.
The newly enacted changes to the 179D deduction include:
- An increase in the deduction amount to $5.00 per square foot (from $1.88 per square foot previously).
- Expanded eligibility including building projects completed for non-for-profit entities, instrumentalities, and Tribal governments (all previously ineligible).
- Relaxation of the qualifications for retrofits, including a decrease in “Energy Use Intensity” to 25% (previously 50%) and the removal of the requirement for an energy simulation model.
- The deduction can now be taken on a specific commercial building every 3 years (previously, the deduction was permitted once over the life of the building).
Changes to 179D accelerate the efficiency deduction for the costs of a building and improvements made. Historically, these costs were written off over a 39-year period. 179D now allows a large portion of energy efficiency costs to be written off in the first year, providing immediate cash flow relief. For non-tax-paying entities, the deduction may be gifted to the architect or designer as an incentive to focus on energy efficiency and conservation in public spaces.
For questions or additional information on how the 179D deduction changes may impact your business, contact your Marcum tax professional.