The Inflation Reduction Act: Incentives for Commercial Contractors
The Inflation Reduction Act (IRA) doesn’t just have benefits for residential contractors. It also has a key tax deduction solely for those who work in commercial HVACR.
179D—the Energy Efficient Commercial Buildings Deduction, applies to property placed in service after December 31, 2022, and enables building owners to claim a tax deduction for installing qualifying systems in buildings. Systems that qualify include heating, cooling, ventilation, or hot water systems that reduce the energy and power cost of running the systems by 15%. This provision updates and expands the energy-efficient commercial buildings deduction by increasing the maximum deduction.
The maximum value of the base deduction is $0.50 per square foot. This number increases by $0.02 per square foot for each percentage that energy cost savings exceed 25%. This deduction is not to exceed $1.00 per square foot.
The bonus deduction is $2.50 per square foot, which increases by $0.10 per square foot for each percentage that energy cost savings exceed 25%. The bonus deduction is not to exceed $5.00 per square foot. The exact amount of the deduction depends on the total energy and power cost savings from energy efficiency improvements, as well as fulfilling labor and prevailing wage requirements.
To learn more about the IRA, click here.
ACCA lobbied to make the 179D tax credit permanent for many years and finally won the battle in 2020 when it was made permanent as part of the Consolidated Appropriations Act of 2021.
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