The IRA’s 179D Deduction: What You Need to Know

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On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. This sweeping legislation invests in clean energy via various tax adjustments.

One significant change made in the bill was the 179D commercial buildings energy efficiency tax deduction. The deduction allows building owners to claim tax deductions for building upgrades that improve energy efficiency. Previously, the requirement to claim the deduction was to achieve 50% lower energy and power costs. Now, the deduction includes a sliding scale approach, with the HVAC savings requirement being 15%. This deduction can be taken every three years for a building project, expanding from the previous limit of once over the lifetime of the building. The deduction was also increased from $1.80 per square foot to a sliding scale rate of up to $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. The IRA also broadened the eligibility for building projects to now include non-profits and Tribal governments.

ACCA is hopeful this change will broaden the use of this incentive to a larger number of ACCA members. To read a full summary of the bill, click here.

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Posted In: Government, Money, Taxes