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Inflation Reduction Act of 2022 and Its Implications on 179D

Improving or constructing buildings can help commercial building owners and businesses meet sustainability goals and be energy efficient. This reduces federal income tax liability and increases the cash flow.   US tax code sections of 179D and 45L provide tax incentives for energy efficient buildings. Both incentives must be certified by a third-party advisor as required by the tax law. Confidently pursue these incentives and put money back into your business with guidance and certification from our professionals.  
  • Section 179D Tax Deduction: This deduction allows businesses to deduct up to $5.00 (up from $1.80) per square foot of the cost of energy efficient improvements made to commercial buildings. The deduction is available for improvements that meet certain efficiency thresholds, such as a 50% reduction in energy usage. The 179D tax deduction is a permanent part of the tax code and doesn’t expire.
  • Section 45L Tax Credit: The credit is available for a wider range of improvements than the Section 179D deduction, and it does not require the improvements to meet any efficiency thresholds.
  Here are some additional things to keep in mind about tax incentives for energy efficient buildings:   For tax years 2022 and prior, the Section 179D deduction allows a deduction of up to $1.88 per square foot for taxpayers, architects, engineers and owners of commercial and residential buildings that are 4 stories or higher.   Beginning in tax year 2023, the Section 179D deduction increased to up to $5.00 per square foot. Additionally, the scope of this deduction expanded to tax-exempt entities including government-owned, not-for-profit organizations, churches and other religious organizations, Tribal organizations, and not-for-profit schools and universities to allocate deductions to eligible designers.   Let us take an example of a person who owns a commercial space such as a parking garage or a storage facility spanning 65,000 sft. In this case the person is eligible for tax savings computed as below:

Inflation Reduction Act of 2022 and it’s implications on 179D – Blog

Pre- 2023
HVAC Lighting Building envelope Total
$ 0.60 $ 0.60 $ 0.60 $1.80
65,000 x $0.60 65,000 x $0.60 65,000 x $0.60 65,000 x $1.80
= $117,000.00
In 2023
$5.00 65,000 x $5.00
=$325,000.00 *
*Post IRA maximums requires meeting apprenticeship and prevailing wage criteria The incentives are available for both new construction and existing buildings. The incentives can be used to offset both federal and state taxes. The incentives are subject to change, so it is important to check with the IRS and your state tax authority for the most up-to-date information.   The 179D Energy Efficient Commercial Building Deduction is a valuable tax incentive for businesses that want to improve the energy efficiency of their buildings. The deduction can save businesses thousands of dollars in taxes and help them reduce their environmental impact.   If you are considering making energy-efficient improvements to your commercial building, you should consider claiming the 179D Deduction. The deduction can save you money, reduce your environmental impact, and make your building more attractive to tenants and customers. Our tax experts at the National Tax Group are here to help, please contact us for your free assessment today !