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Top 5 Ways to Qualify for the Section 179 Deduction

Writer's picture: Rick RubergRick Ruberg


The Section 179D deduction, known as the Energy-Efficient Commercial Buildings Deduction, offers a significant tax-saving opportunity for businesses and property owners who prioritize energy efficiency. To qualify for this deduction, it’s important to understand the requirements and the steps you can take to ensure your building or project meets the eligibility criteria.


Sunlit energy-efficient glass building reflecting trees, under a clear blue sky.

Here are 5 ways to qualify for energy rebates on commercial buildings:

1. Focus on New Construction or Major Renovations

While retrofits can qualify for the deduction, new construction projects and major renovations are prime candidates for 179D eligibility. Designing energy efficiency into the building from the ground up often yields the best results.


  • Requirements: New buildings must demonstrate compliance with energy efficiency standards set forth in ASHRAE 90.1 for the relevant tax year.


  • Best Practices: Collaborate with architects and engineers during the design phase to incorporate energy-efficient systems and materials.


2. Enhance HVAC and Mechanical Systems

Heating, ventilation, air conditioning, and hot water systems must be designed and installed to minimize energy consumption while maintaining comfort levels. This might include high-efficiency boilers, advanced temperature controls, and energy recovery systems.


  • Requirements: HVAC improvements should meet or exceed energy efficiency standards outlined in ASHRAE 90.1 for the relevant tax year.


  • Best Practices: Invest in high-efficiency heat pumps, variable refrigerant flow systems, or geothermal systems to boost energy performance.


3. Upgrade Lighting Systems

Modern, energy-efficient lighting solutions must be implemented, such as LED fixtures, advanced controls, and occupancy sensors. The lighting system must reduce energy consumption by at least 25%.


  • Requirements: Lighting upgrades must achieve a 25% to 50% reduction in energy usage as compared in ASHRAE 90.1 standards, depending on when the project was completed.


  • Best Practices: Use motion sensors, dimming controls, and daylight harvesting systems to optimize energy savings and meet qualification standards.


4. Improve the Building Envelope

The building's exterior components (including walls, roof, windows, and doors) must be designed to optimize energy performance through proper insulation, air sealing, and high-performance materials.


  • Requirements: Improvements must result in measurable energy savings compared to ASHRAE standards.


  • Best Practices: Use high-performance insulation, energy-efficient windows, and reflective roofing materials to enhance your building’s energy efficiency.


5. Conduct an Energy Modeling Study

An energy modeling study is essential to demonstrate compliance and achieve certification for the 179D deduction. This analysis measures your building’s energy savings against required benchmarks.


  • Requirements: Your building must achieve at least 50% energy savings (or partial savings for specific systems) compared to a baseline.


  • Tips: Partner with a licensed engineer or energy consultant experienced in 179D certifications to ensure accurate results.



Roadmapping Your Section 179D Deduction

Strategic planning for 179D qualification should take place early in your project:


  1. Engage qualified professionals before the design phase

  2. Consider integrated design approaches

  3. Evaluate cost-benefit analyses for different energy-efficient solutions


Timing Considerations

The deduction must be claimed for the tax year in which the building is placed in service. However, there are provisions for claiming the deduction retroactively through amended returns for previous tax years.


Remember that tax laws change frequently, and what works for one business might not be optimal for another. Always consult with a qualified tax professional before implementing new tax strategies.



Final Thoughts on Qualifying for the Section 179 Deduction


When businesses invest in energy-efficient buildings and systems, they not only save money through tax deductions but also through reduced utility costs. These investments help reduce strain on the power grid, decrease carbon emissions, and contribute to a more sustainable future.


Qualifying for the Section 179 deduction requires careful planning, proper documentation, and attention to technical requirements. However, the financial benefits can be substantial, making it worthwhile to invest in energy-efficient systems and proper certification. Consider working with qualified tax professionals and energy consultants to maximize your chances of qualifying for this valuable deduction.



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