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06 Dec 2022

Inflation Reduction Act 179D Energy Efficient Tax Deduction Explained


Norman Kirby

Director of Marketing - US LED

With the Inflation Reduction Act of 2022 (IRA) now signed into law, it aims to make historical climate and clean energy investments that could cut U.S. greenhouse gas (GHG) emissions up to 43% by 2030. Because buildings are one of the largest sources of GHG emissions, increasing energy efficiency projects and accelerating building performance has become more urgent. The IRA includes more than $200 billion in tax incentives designed to do just that and will impact the real estate and construction industry. Those businesses and REITs looking to capitalize on these benefits can further align with environmental, social, and governance (ESG)-focused business strategies.

Section 179D Energy Efficient Commercial Buildings Tax Deduction

The 179D commercial buildings energy efficiency tax deduction primarily enables building owners to claim a tax deduction for installing qualifying systems in facilities associated with energy-efficiency improvements, including interior lighting systems and HVAC. The recent IRA dramatically increases this deduction, making it impactful for architecture, engineering, and construction (AEC) industries and commercial building owners. It also extended eligibility for Real Estate Investment Trusts (REITs) and tax-exempt entities, including non-profits, hospitals, schools, and tribal properties. Those nontaxable entities pass the deduction on to the primary designers of the properties, including engineers, architects, contractors, energy services providers, and environmental consultants.

What Are The Current IRC 179D Requirements and Deductions?

What Is The IRA Changing Under IRC Section 179D?

The IRA modifies and expands the Energy Efficient Commercial Buildings Deduction under IRC Section 179D starting January 1, 2023, with the following changes:

IRC Section 179D Comparison Table

Who Can Complete A 179D Claim? How Does A 179D Deduction Claim Work?

A taxpayer cannot prepare the 179D claim on their own and must have a licensed engineer complete a third-party certification to validate the savings claimed on behalf of the owner. In addition, as part of the IRA, the IRS will gain an additional $80 billion of funding, with much of that going toward enforcing compliance amid the changing tax code. Therefore, it is highly recommended that organizations work with a qualified engineering firm and specialty tax professional to complete a Section 179D study and how it applies.

To file an IRC Section 179D claim, the IRS requires:

Looking To The Future

This new legislation is laying the groundwork for more efficiently performing buildings and is a tipping point for energy efficiency projects focused on sustainability. Furthermore, it should result in substantial growth in technologies that generate improved performance, like interior lighting systems, HVAC, and related controls. If your organization is looking to implement new LED lighting systems to capitalize on these tax credits and other utility rebates, the US LED lighting professionals are available to discuss your project or national program rollout with you. Click here to contact the team.


Get more information at www.usled.com

Norman Kirby is the Director of Marketing for US LED, a full-service provider of LED lighting and turnkey installation for self-storage facilities throughout the United States since 2001. Thanks to decades of engineering expertise, US LED continuously offers ultra-long-life lighting that approaches or exceeds 200,000-Hour L70 lifetimes, backed by an industry-leading Ten-Year Warranty. Additionally, much of the product portfolio is assembled in Houston, Texas. For more information, email inquiries at customerservice@usled.com or contact Norman at nkirby@usled.com.

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