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Recent changes to the Sec. 179D energy-efficient commercial buildings deduction

The energy efficient commercial buildings deduction under Sec. 179D provides taxpayers with an incentive to make certain commercial building property more energy efficient. The Sec. 179D deduction has been in effect since Jan. 1, 2006, and was made permanent as part of the Consolidated Appropriations Act of 2021, P.L. 116-260, enacted in December 2020. A new and enhanced version of Sec. 179D was signed into law on Aug. 16, 2022, as part of the Inflation Reduction Act of 2022, P.L. 117-169. The new rules under Sec. 179D apply for tax years beginning after Dec. 31, 2022, and to qualifying property placed in service after that date.

These newly enacted changes to Sec. 179D provide additional opportunities for taxpayers, including as much as $5.36 per square foot (sq. ft.) in immediate deductions to encourage the construction of energy-efficient commercial buildings and multifamily buildings that are at least four stories tall. In addition, certain provisions under the revised Sec. 179D expand the opportunity for energy efficient retrofits of older buildings to become eligible for the deduction, by reducing applicable requirements. Tax-exempt organizations are also provided an incentive to make their facilities more energy efficient under the new provisions. However, taxpayers must also be aware of added complexity under the new rules, including the requirement to meet certain prevailing wage and apprenticeship standards to achieve the maximum deduction.

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