New $5.65/sq.ft. Maximum 179D Deduction
For owners of new facilities/additions/renovations, or designers of such for municipal or non-profit owners
April 13, 2024
While 2023 brought new levels of tax incentive to the building community through the Inflation Reduction Act with a new maximum tax deduction of $5.36/sq.ft, 2024 now brings an inflation-adjusted maximum of $5.65/sq.ft.
Facility projects started prior to January 30, 2023 and completed in 2023 or 2024 (or later) are of particular importance due to their eliminated dependency on meeting prevailing wage/apprenticeship requirements, but all projects are worth investigating at these rates. Keep in mind nearly every project with LED lighting or reasonably efficient HVAC has a good chance at obtaining some amount of the 179D deduction (tip: avoid electric resistance heat unless it is only auxiliary backup heat for heat pumps). This should be the case at least through the next few years until the standards change. We believe the IRS has taken this path to help incentivize the remaining market to get acquainted with both this process and the requirements before making the standards more challenging. However, even now, more efficient designs will still reward you with higher tax deductions.
2023 179D tax deduction ranges:
$0.54-$1.07/sq.ft. for facilities not meeting the exemption time period or prevailing wage/apprenticeship requirements.
$2.68-$5.36/sq.ft. for facilities meeting the exemption time period or prevailing wage/apprenticeship requirements.
2024 179D tax deduction ranges:
$0.57-$1.13/sq.ft. for facilities not meeting the exemption time period or prevailing wage/apprenticeship requirements.
$2.83-$5.65/sq.ft. for facilities meeting the exemption time period or prevailing wage/apprenticeship requirements.
We expect higher inflation adjustments for 179D in future years.
Note that private building owners may still go back to January 1, 2006 to account for all upgrades, new facilities, and additions/renovations that have not yet been fully depreciated. This can be completed without amending taxes through the use of IRS Form 3115 Change of Accounting Method with which your accountant can assist.
Facility designers such as design-build contractors, architects, and engineers, can claim this tax deduction for all open tax years (typically a 3-year look-back but possibly more) for designs completed for municipal building owners and, starting in 2023, for non-profit and tribal building owners also.
For high-rise residential facilities (4-stories above grade or more) placed into service in 2023 or later AND designed for Energy Star, owners get to double-up in a sense. These are good candidates to obtain both 179D tax deduction AND a 45L tax credit.
We are also more than happy to assist your accountants in multiple facets if they need guidance since this is a specialty tax deduction still unfamiliar to many. Our team of engineers are proven experts at maximizing your deductions due to our design-engineering background and deep understanding of the systems analyzed. Our company is one of very few that has roots in the 179D deduction since its inception in 2006, and you will find that our reputation, service, and product reflect this.
Keith Dohn, P.E.
