179D Tax Deduction: What contractors should know

by Kevin Kalal, CPA

The 179D Commercial Building Energy Tax Deduction, also known as the 179D deduction, has been around for a while—since 2005 to be exact. Simply put, it allows for a tax deduction against eligible improvements that reduce a building’s energy use.

Thanks to the Inflation Reduction Act, as of January 1, 2023, the deduction is now applicable to contractors who help design and install eligible improvements on tax-exempt buildings owned by certain entities. The Inflation Reduction Act also expanded the deduction’s benefit to $5 per square foot, which is available through 2033.

Could you qualify?

If you’re a contractor, architect, engineer, or designer who has worked on tax-exempt buildings, you could qualify for the 179D deduction.

What is a tax-exempt building?

Per the 179D deduction, a tax-exempt building is any building owned by one of the following types of entities:

• Governments
• Native American tribal governments
• Political organizations
• Nonprofit organizations
• Churches and religious organizations
• Private schools and universities
• Private foundations
• Alaska Native corporations

What are eligible improvements?

Eligible improvements include energy improvements within a building’s envelope, HVAC, and/or interior lighting systems.

How can your business qualify?

As with most tax deductions, you must prove your eligibility through documentation. To qualify for 179D, you must be able to certify the eligibility of your building improvement (i.e., documentation or certification by an energy credit expert).

Make the most of 179D with help from an expert

Determining if your business and the work you did qualifies for the 179D deduction can be confusing, to say the least. To help you take the first step, we can put you in touch with an energy credit expert who can analyze your work. We’ll make sure the deduction is appropriate captured on your tax return, so you can make the most of the benefit.

To learn more about how we can help, contact us today.