Energy efficient commercial buildings deduction

The Working Families Tax Cuts terminated the energy efficient commercial buildings deduction for property, the construction of which, begins after June 30, 2026. The rules below continue to apply to property the construction of which begins on or before June 30, 2026.

Building owners who place in service energy efficient commercial building property (EECBP) or energy efficient commercial building retrofit property (EEBRP) may be able to claim a tax deduction.

The deduction is allowed under Internal Revenue Code (IRC) Section 179D.

An increased deduction may be available for increased energy savings when the construction meets the prevailing wage and apprenticeship requirements.

On this page

• Who is eligible
• Building property that qualifies
• Amount of the deduction for 2023 and after
• Amount of the deduction for 2022 and before
• ASHRAE standards

Who is eligible

For property the construction of which begins on or before June 30, 2026, and that otherwise meets the requirements of section 179D, the deduction (for taxable years beginning on or after Jan. 1, 2023) is available to:

• Owners of qualified commercial buildings
• Designers of EECBP/EEBRP installed in buildings owned by specified tax-exempt entities, including certain government entities, Indian tribal governments, Alaska Native Corporations, and other tax-exempt organizations

Prior to 2023, the deduction was previously available only to owners of qualified commercial buildings and designers of EECBP installed in buildings owned by certain government entities.

Building property that qualifies

Construction must begin on or before June 30, 2026.

EECBP must be installed on or in a building that is located in the U.S. and within the scope of a specified Reference Standard 90.1 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) and the Illuminating Engineering Society of North America. It must be property for which depreciation or amortization is allowable, and installed as part of:

• the interior lighting systems,
• the heating, cooling, ventilation, and hot water systems, or
• the building envelope.

It must be certified as being installed as part of a plan to reduce the total annual energy and power costs for the above systems by 25% or more in comparison to a reference building meeting the minimum requirements of Reference Standard 90.1.

EEBRP must be installed on or in a qualified building as part of:

• the interior lighting systems;
• the heating, cooling, ventilation, and hot water systems; or
• the building envelope.

A qualified building for EEBRP is a building located in the U.S. and originally placed in service not less than 5 years before the establishment of a qualified retrofit plan for the building. EEBRP must be property for which depreciation or amortization is allowable, and it must be certified as meeting certain energy saving requirements. 

Amount of the deduction for 2023 and after

For property placed in service in 2023 and after – provided construction begins on or before June 30,2026 - the deduction for EECBP equals the lesser of:

The cost of the installed property

OR

The maximum savings per square foot amount (indexed annually for inflation beginning in 2023) is calculated as:

• $0.50 per square foot for a building with 25% energy savings
• Plus $0.02 per square foot for each percentage point of energy savings above 25%
• Up to a maximum of $1.00 per square foot for a building with 50% energy savings
• These square footage amounts increase significantly if Prevailing Wage and Apprenticeship (PWA) requirements are met.

Expenses deducted in the prior 3 years (4 years for an allocated deduction) reduce the maximum deduction before computing the current-year deduction.

The applicable dollar values used to determine the maximum allowance of the deduction for property placed in service on or after Jan. 1, 2023, are as follows:

Amounts in the table above come from the applicable section 179D inflation-adjustment guidance cited in the following webpages:

• Tax inflation adjustments for tax year 2026
• Tax inflation adjustments for tax year 2025
• Tax inflation adjustments for tax year 2024
• Tax inflation adjustments for tax year 2023

Prevailing wage and apprenticeship bonus 

Beginning in 2023, if local prevailing wages are paid and apprenticeship requirements are met, an increased maximum deduction applies. The applicable dollar values used to determine the maximum allowance of the deduction are increased to  approximately 5 times the base amount (indexed annually for inflation).

Find details in TD 9998.

Amount of the deduction for 2022 and before

For property placed in service before Jan. 1, 2023, the deduction is capped at $1.80 per square foot (indexed for inflation after 2020) for buildings with 50% energy savings. A partial deduction is available on certain property.

All expenses deducted in prior years are applied against the cap before computing the current-year deduction.

Find detailed requirements for property placed in service before Jan. 1, 2023:

• Notice 2012-26
• Notice 2008-40
• Notice 2006-52

ASHRAE standards

Under the Inflation Reduction Act, energy savings must be measured against the latest ASHRAE standard affirmed by the Secretary of Treasury not later than the date that is 4 years before the date the property is placed in service.

F For property placed in service after Dec. 31, 2026, and for which construction began after Dec. 31, 2022, ASHRAE Standard 90.1-2019 applies.

For property the construction of which began before Jan. 1, 2023, or that is placed in service before Jan. 1, 2027, ASHRAE Standard 90.1-2007 applies.

For details, see Announcement 2024-24.

Related

• Credits and Deductions Under the Inflation Reduction Act of 2022
• Instructions for Form 7205, Energy Efficient Commercial Buildings Deduction