Tax Deductions for Commercial Buildings

Building owners who install new equipment aimed at improving the energy efficiency of their properties may be able to claim a tax deduction to offset some of the costs of the equipment. The deduction is allowed under Internal Revenue Code (IRC) Section 179D, which was expanded under the Inflation Reduction Act of 2022.

Available Tax Deductions

NEW! Energy Efficient Commercial Building Retrofit Property (EEBRP)

  • Eligible Improvements
    • Interior lighting
    • HVAC
    • Hot water systems
    • Building envelope
  • Deduction Amounts

Energy Efficient Commercial Building Property (EECBP)

  • Eligible Improvements
    • Interior lighting
    • HVAC
    • Hot water systems
    • Building envelope
  • Deduction Amounts
    • New! Years 2023 or later:
      • A deduction can be taken for the lesser of:
        • The cost of the installed property, or
        • The savings per square foot 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
    • Years 2022 and earlier:
      • For property placed in service before January 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.

U.S. Department of Energy (DOE) 179d Portal

DOE’s 179d Portal hosts two free tools to estimate potential federal tax deductions for installing eligible energy-efficient technologies in commercial buildings for qualifying upgrades beginning in tax year 2023.

The portal offers two different pathway tools for qualification: 

  1. The traditional (modeling) pathway tool uses EnergyPlus® building energy modeling to evaluate the impact of eligible properties, compared to the performance of a reference building model. 
    1. This pathway currently applies only to office buildings and strip malls. DOE intends to add additional building types for the traditional pathway. 
    2. It can be applied to both new construction and building upgrade projects.
  2. The alternative (measured) qualification pathway tool estimates potential deductions using equipment information and pre- and post-retrofit utility data through the U.S. Environmental Protection Agency’s ENERGY STAR® Portfolio Manager® tool. 
    1. This pathway applies to all commercial building types. 
    2. It can be applied only to building upgrade projects.

DOE's 179d Portal

Additional Requirements

There are additional criteria and requirements which must be met to qualify for these tax credits. We encourage you to review the full information available on the IRS website at the link below.

More Information

Get Help Saving Energy in Your Commercial Building

For information on capturing energy-efficiency opportunities for your commercial property, visit www.energystar.gov/buildings.