Q: Who qualifies for the 179D deduction?

The 179D deduction is available to two groups: 1. Building Owners (Primary Beneficiaries): - Commercial building owners - Real estate developers - Manufacturing facility owners - Retail, office, warehouse, hotel owners - Must be the taxpayer that placed the property in service 2. Designers (For Government Buildings): - Architects - Engineers - Contractors - Environmental consultants - Who design energy-efficient systems for government-owned buildings (federal, state, local) - Designer allocation allows the deduction to pass to the private-sector firm The building must be located in the United States and used for commercial purposes (not residential). This includes offices, retail, warehouses, schools, hospitals, government buildings, and more.

Q: What energy standards must be met?

Energy standards vary between 179D and 45L: 179D Energy Standards: - Baseline: ASHRAE 90.1-2007 (for buildings placed in service before 2024) - Current: ASHRAE 90.1-2019 (for buildings placed in service 2024+) - Must achieve 25-50% energy cost reduction vs baseline - Calculated using approved energy modeling software - Partial deductions available for individual systems meeting thresholds 45L Energy Standards: - ENERGY STAR Certified Homes Version 3.1 or 3.2 (regional requirements) - DOE Zero Energy Ready Home (ZERH) certification - Must meet or exceed IECC energy code + ENERGY STAR requirements - Third-party verification required - HERS Index score requirements (varies by climate zone) Both programs require certification by qualified third-party certifiers: - 179D: IRS-approved software and qualified professional certification - 45L: ENERGY STAR or ZERH certification by accredited rater We coordinate with your energy consultants and certifiers to ensure compliance and maximize your deduction/credit.

Q: Do I need an energy audit?

The answer depends on which incentive you're pursuing: 179D - YES, certification required: - Must conduct energy modeling analysis - Comparison to baseline building (ASHRAE 90.1) - Performed by qualified professional (PE or licensed contractor) - Software must be IRS-approved (DOE-2, EnergyPlus, eQUEST, TRACE, etc.) - Certification letter stating energy savings achieved - Documentation must support deduction amount claimed 45L - YES, third-party certification required: - ENERGY STAR or ZERH certification process - Includes design review, inspections, and testing - Performed by accredited Home Energy Rater - HERS Index rating calculated - Final certification documents issued Who Performs the Audit: At Engineered Tax Services, we have in-house Professional Engineers and partnerships with certified energy raters who: - Conduct all required modeling and testing - Ensure compliance with IRS and DOE requirements - Provide comprehensive documentation - Maximize your deduction/credit amount - Defend calculations if audited The audit/certification cost is a small fraction of the tax benefit received and provides IRS-required substantiation.

Question 1

What is the 179D tax deduction?

Accepted Answer

The 179D Commercial Buildings Energy Efficiency Tax Deduction allows building owners and designers to deduct up to $5.00 per square foot (increased from $1.80 by the Inflation Reduction Act) for installing energy-efficient systems in commercial buildings. The deduction applies to three building systems:

1. HVAC Systems: Heating, ventilation, and air conditioning
2. Building Envelope: Walls, roof, windows, doors, insulation
3. Interior Lighting: Fixtures, controls, sensors

The updated 179D also provides bonus deductions for projects meeting prevailing wage and apprenticeship requirements, and includes a sliding scale based on energy savings percentage (25% - 50% reduction). This powerful incentive can generate substantial tax deductions for new construction, renovations, and energy upgrades.

Question 2

Who qualifies for the 179D deduction?

Accepted Answer

The 179D deduction is available to two groups:

1. Building Owners (Primary Beneficiaries):
- Commercial building owners
- Real estate developers
- Manufacturing facility owners
- Retail, office, warehouse, hotel owners
- Must be the taxpayer that placed the property in service

2. Designers (For Government Buildings):
- Architects
- Engineers
- Contractors
- Environmental consultants
- Who design energy-efficient systems for government-owned buildings (federal, state, local)
- Designer allocation allows the deduction to pass to the private-sector firm

The building must be located in the United States and used for commercial purposes (not residential). This includes offices, retail, warehouses, schools, hospitals, government buildings, and more.

Question 3

What is the 45L tax credit?

Accepted Answer

The 45L New Energy Efficient Home Credit provides a tax credit to eligible contractors for building energy-efficient homes. The Inflation Reduction Act significantly enhanced this credit:

Credit Amounts (per dwelling unit):
- $2,500 for homes meeting ENERGY STAR requirements
- $5,000 for homes meeting Zero Energy Ready Home (ZERH) standards

Qualifying Homes:
- Single-family homes
- Townhomes
- Apartment buildings (3+ stories)
- Manufactured homes

The credit applies to homes acquired after December 31, 2022, and has been extended through 2032. For a developer building 100 ZERH-certified units, that's a $500,000 tax credit. The 45L credit helps offset the incremental cost of energy-efficient construction while creating marketable homes with lower operating costs.

Question 4

What's the maximum 179D deduction I can claim?

Accepted Answer

Under the Inflation Reduction Act of 2022, the maximum 179D deduction has increased dramatically:

Base Deduction (without prevailing wage/apprenticeship):
- $0.50 - $1.00 per square foot depending on energy savings

Enhanced Deduction (with prevailing wage/apprenticeship):
- $2.50 - $5.00 per square foot

Energy Savings Requirements:
- 25% energy savings: $0.50/$2.50 per sq ft
- 30% energy savings: $0.60/$3.00 per sq ft
- 40% energy savings: $0.80/$4.00 per sq ft
- 50% energy savings: $1.00/$5.00 per sq ft

Example Maximum Deduction:
- 200,000 sq ft office building
- 50% energy reduction
- Prevailing wage compliance
- Deduction: 200,000 × $5.00 = $1,000,000
- Tax Savings (37% bracket): $370,000

Projects can claim the deduction in the year the building is placed in service, providing immediate tax relief.

Question 5

Do renovations qualify for energy efficiency credits?

Accepted Answer

Yes! Both 179D and 45L apply to renovations and retrofits, not just new construction:

179D for Renovations:
- Building envelope improvements (roof, walls, windows)
- HVAC system replacements or upgrades
- Lighting retrofits and controls
- Must meet energy savings thresholds vs baseline building
- Can claim multiple times on same building (once every 3 years per system)

45L for Substantial Renovations:
- Gut renovations of residential units
- Must meet "reconstruction" standards (50%+ of existing walls retained)
- Apply ENERGY STAR or ZERH certification to renovated units

Renovations often provide excellent ROI because:
- Lower total cost than new construction
- Tax incentive offsets upgrade expenses
- Energy savings reduce operating costs
- Increased property value and marketability

We've helped clients claim 179D deductions on everything from office building lighting retrofits to complete HVAC system replacements.

Question 6

Can I claim both 179D and 45L?

Accepted Answer

No - 179D and 45L are mutually exclusive because they target different property types:

179D applies to:
- Commercial buildings
- Non-residential property
- Offices, retail, warehouses, schools, hospitals, government buildings

45L applies to:
- Residential property
- Single-family homes, townhomes, apartments, manufactured homes

However, you CAN strategically use both if you develop different property types:

Mixed-Use Development Example:
- Ground floor retail: 179D deduction on commercial space
- Upper floors apartments: 45L credit on residential units

Developer Portfolio Example:
- Office building project: 179D ($5/sq ft)
- Residential subdivision: 45L ($5,000/home)

The key is proper property classification and ensuring you apply the correct incentive to each qualifying property type. We help developers maximize both incentives across their portfolios.

Question 7

What energy standards must be met?

Accepted Answer

Energy standards vary between 179D and 45L:

179D Energy Standards:
- Baseline: ASHRAE 90.1-2007 (for buildings placed in service before 2024)
- Current: ASHRAE 90.1-2019 (for buildings placed in service 2024+)
- Must achieve 25-50% energy cost reduction vs baseline
- Calculated using approved energy modeling software
- Partial deductions available for individual systems meeting thresholds

45L Energy Standards:
- ENERGY STAR Certified Homes Version 3.1 or 3.2 (regional requirements)
- DOE Zero Energy Ready Home (ZERH) certification
- Must meet or exceed IECC energy code + ENERGY STAR requirements
- Third-party verification required
- HERS Index score requirements (varies by climate zone)

Both programs require certification by qualified third-party certifiers:
- 179D: IRS-approved software and qualified professional certification
- 45L: ENERGY STAR or ZERH certification by accredited rater

We coordinate with your energy consultants and certifiers to ensure compliance and maximize your deduction/credit.

Question 8

Do I need an energy audit?

Accepted Answer

The answer depends on which incentive you're pursuing:

179D - YES, certification required:
- Must conduct energy modeling analysis
- Comparison to baseline building (ASHRAE 90.1)
- Performed by qualified professional (PE or licensed contractor)
- Software must be IRS-approved (DOE-2, EnergyPlus, eQUEST, TRACE, etc.)
- Certification letter stating energy savings achieved
- Documentation must support deduction amount claimed

45L - YES, third-party certification required:
- ENERGY STAR or ZERH certification process
- Includes design review, inspections, and testing
- Performed by accredited Home Energy Rater
- HERS Index rating calculated
- Final certification documents issued

Who Performs the Audit:
At Engineered Tax Services, we have in-house Professional Engineers and partnerships with certified energy raters who:
- Conduct all required modeling and testing
- Ensure compliance with IRS and DOE requirements
- Provide comprehensive documentation
- Maximize your deduction/credit amount
- Defend calculations if audited

The audit/certification cost is a small fraction of the tax benefit received and provides IRS-required substantiation.

Question 9

What's the difference between 179D and 45L?

Accepted Answer

179D and 45L are completely different incentives for different property types:

Feature	179D	45L
Property Type	Commercial buildings	Residential homes
Incentive Type	Tax deduction	Tax credit
Maximum Benefit	$5.00/sq ft	$5,000/unit
Who Benefits	Building owners or designers (govt buildings)	Eligible contractors/developers
Standards	ASHRAE 90.1 (25-50% savings)	ENERGY STAR or ZERH
Certification	Energy modeling by qualified professional	Third-party ENERGY STAR/ZERH rater
Frequency	Once per 3 years per system	Per dwelling unit acquired
Expiration	Permanent (made permanent 2020)	Through 2032

Key Distinction:
- 179D = Deduction (reduces taxable income)
- 45L = Credit (dollar-for-dollar tax reduction)

Credits are generally more valuable than deductions because they directly reduce tax owed rather than just reducing taxable income.

Question 10

Are solar panels covered by these credits?

Accepted Answer

Solar panels are NOT covered by 179D or 45L, but they DO qualify for other excellent tax incentives:

Investment Tax Credit (ITC) - Solar:
- 30% tax credit for commercial solar installations
- Extended through 2032 by Inflation Reduction Act
- Steps down to 26% (2033), 22% (2034)
- Applies to both residential and commercial solar
- Can be combined with other incentives

179D + Solar Combination Strategy:
You CAN claim both 179D and solar ITC on the same project:
- 179D: Energy-efficient HVAC, envelope, lighting systems
- Solar ITC: Solar panel installation costs
- Net-zero buildings often maximize both incentives

45L + Solar Combination:
- ZERH certification (for $5,000 credit) often includes solar
- Solar panels help achieve net-zero energy requirements
- Claim both 45L credit AND residential solar ITC (30%)

Example Combined Benefit:
- Net-zero commercial building: 200,000 sq ft
- 179D deduction: $1,000,000 (saves $370k at 37% rate)
- Solar installation: $2,000,000
- Solar ITC: $600,000
- Total tax benefit: $970,000

We help you layer multiple energy incentives to maximize your total tax benefit while achieving your sustainability goals.

Feature	179D Commercial	45L Residential
Property Type	Commercial Buildings	Residential Homes & Multifamily
Maximum Benefit	Up to $5.00 per sq ft	Up to $5,000 per unit
Incentive Type	Tax Deduction	Tax Credit
Eligible Systems	HVAC, Lighting, Building Envelope	Whole Building Performance
New Construction
Renovations/Retrofits
Claimable By Designer
Multiple Claims Possible
Requires Certification
Extended Through	Permanent	2032

Tax Incentives

Energy Efficiency Credits

What are Energy Efficiency Tax Credits?

Act Now - Limited Time Remaining

Why Choose Energy Efficiency Credits?

Key Benefits

Available Programs

179D Tax Deduction

45L Tax Credit

179D vs 45L: Which Credit is Right for You?

Energy Certification Process

Building Assessment & Eligibility Review

Energy Modeling & Performance Analysis

Third-Party Certification & Documentation

Tax Benefit Allocation & Filing

Ongoing Compliance & Future Projects

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Energy Efficiency Credits - Frequently Asked Questions