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A Guide to Claiming the 179D Deduction

Are you an architect, engineer, equipment supplier/representative, or specialty contractor who has worked on new or renovated government buildings or tax-exempt properties? Do you own any commercial buildings? You could be eligible for a tax deduction worth up to $5.00 per square foot through the 179D Energy Efficient Commercial Buildings deduction.

While this deduction can save businesses millions, the process is intricate and requires a thorough understanding of the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) standards, energy modeling, and certification. The 179D deduction is an excellent opportunity to transform your business by earning a tax incentive for stimulating the economy. This comprehensive guide will detail everything you need to know about the incentive and study process.

What is the 179D Deduction?

179D is a federal tax deduction made available to owners of commercial buildings and companies working on tax-exempt buildings. Commercial building owners can claim the deduction when they install new HVAC, interior lighting, or building envelope systems on their buildings.

Additionally, architects, engineers, and contractors can take advantage of 179D when they impact the design of HVAC, interior lighting, or building envelope systems within new construction or renovation projects on buildings owned by government or tax-exempt entities.

What Improvements are Eligible?

For businesses to maximize their deduction, it’s essential to understand the eligibility criteria for 179D.

New or improved building designs must be aimed at reducing energy use. These efforts must be centered on at least one of the following systems:

  • Building Envelope
  • Heating Ventilation and Air Conditioning (HVAC)
  • Interior Lighting

Recent Changes to Section 179D

In the United States, the Inflation Reduction Act (IRA) was signed into law with far-reaching provisions to create energy and health and targeted tax policies to fight inflation, increase domestic energy production, and reduce U.S. carbon emissions. One noteworthy aspect of the IRA is the expansion of the 179D incentive, which is expected to motivate U.S. businesses to take advantage of significant tax deductions for new building construction or renovation of existing property. This incentive is thus gaining ground as a vital tool in promoting American energy independence, strengthening the Architecture, Engineering, and Construction industry and minimizing tax liabilities.

  • Expansion of Eligibility Criteria

Previously, only public agencies were allowed to allocate the 179D deduction to designers. The IRA has expanded these allocations to specified tax-exempt entities, including:

      • Charitable organizations
      • Religious institutions
      • Private schools or colleges
      • Private hospitals
      • Museums
      • Indian tribal governments
      • Alaska native corporations
      • Organizations falling under IRC 501(c)(3)

Real Estate Investment Trusts (REITs), which are companies that own, operate, or finance income-producing real estate across various property sectors, are also included.

  • New Deduction Amount

The maximum deduction amount has been increased from $1.80 per square foot to $5.00 per square foot. Starting in 2023, there are changes to enable greater use of the deduction by capitalizing on the many renovations that buildings undergo during their lifecycles.

Taxpayers who own a building can claim the deduction for the same building every three years for qualifying upgrades. Taxpayers who perform design work on buildings owned by specified tax-exempt entities can claim the deduction for the same building every four years for qualifying upgrades. Previously, the $1.80 per square foot maximum was a lifetime cap.

  • ASHRAE Standards Update

Generally, a project’s efficiency must be measured against ASHRAE standards. The IRA revised the standard to be the most recent of Standard 90.1-2007, or 90.1, from not later than the date four years before a property was placed in service. The previous 90.1 standard comprised the most recent one implemented no later than two years before a property’s placed-in-service date. The below table from IRS Announcement 2023-1 summarizes the standards:/1

Date Placed In Service Applicable Reference Standard 90.1
Before 1/1/2015
Reference Standard 90.1-2001
After 12/31/2014 and before 1/1/2027 *
Reference Standard 90.1-2007
After 12/31/2026*
Reference Standard 90.1-2019

*Taxpayers who begin construction before 1/1/2023 may apply Reference Standard 90.1-2007 regardless of when the building is placed in service

The above updates make the 179D deduction more accessible and taxpayer-friendly.

The 179D Deduction Study Process in Detail

To claim the 179D deduction, you must work alongside a tax professional and an independent third-party engineer. At alliantgroup, we offer a dedicated team of experts who work with you every step of the way.

We begin by identifying candidate buildings and performing a detailed energy-efficiency study to assess any qualified energy-efficient improvements they may have. It’s vital that the study is initiated within three years after a building is placed in service.

For those designers working on buildings owned by the government or tax-exempt entities, the next step is obtaining an allocation letter for each property. This letter will show how the tax deduction will be allocated among the designers involved in the process. For companies to receive this deduction, they must secure such a letter, which allows the government or tax-exempt entity to allocate the benefit to the taxpayer. The IRS has specific guidance regarding the information required in the letter, so it is highly recommended that a qualified consultant facilitate this process. Our Government Relations department is dedicated to securing allocation letters for our clients – in fact, alliantgroup has secured signed allocations from thousands of government entities in all 50 states.

Then, our team models the energy savings for each proposed system. The energy model will predict the amount of energy savings, in dollars, achieved according to ASHRAE standards. Once a model is completed, our team will provide certification indicating the improvements meet the ASHRAE standards, making the building eligible for the 179D deduction.

Tax Court Approved Process

One major advantage of working with alliantgroup is that we are the only provider with its process validated by the U.S. Tax Court. We perform the entire process, including obtaining allocation letters, identifying qualified designers, and conducting the energy model. Our team of experts ensures you maximize your return and claim all the deductions you’re entitled to. We provide you with expert guidance while allowing you to focus on running your business.


The 179D deduction is an incredible opportunity for building owners as well as for architects, engineers, and contractors who were designers of record for eligible new or renovated buildings. Our team of experts offers a hassle-free process to help you take full advantage of the deduction. By partnering with us, you’ll be one step closer to receiving the tax incentives you deserve.

Contact us to take advantage of tax credits and incentives available for your business. You can reach us at 844.524.0077.

Featured Leadership

Mark W. Everson

The Honorable Mark W. Everson was the nation’s 46th Commissioner of Internal Revenue Service serving from 2003 until 2007. Prior to joining the IRS, Everson held Bush administration posts as Deputy Director for Management at the Office of Management and Budget and Controller of the Office of Federal Financial Management. Everson also served in the Reagan administration, holding several positions at the United States Information Agency and the Department of Justice, where his assignments included Deputy Commissioner of the Immigration and Naturalization Service. At the state level, Everson oversaw the Indiana Workforce and Unemployment Insurance Systems under Governor Mitch Daniels.