Post-"Big Beautiful Bill" 179D
The 179D Tax Deduction allows energy-efficient building improvements or new building construction to be eligible for a tax deduction. Prior to 2023, the deduction was up to $1.80 per square foot (indexed for inflation). Properties placed in service after December 31, 2022, may be eligible for a tax deduction of up to $1.00 per square foot. These can increase to $5.00 per square foot if prevailing wage requirements are met. With the passing of the One Big Beautiful Bill, the 179D tax deduction will remain in place for newly constructed assets that begin construction before June 30, 2026. If construction begins after this date, the asset will not be eligible for the 179D tax deduction.
Earning the Maximum Deduction
Under the current requirements, a building qualifies for a $0.50/sqft deduction if the property reduces energy consumption by 25% as compared to the reference standard. If the property reduces energy consumption by 50%, the building qualifies for $1/sqft. If the property meets prevailing wage requirements, the deduction increases to a maximum of $5.00 per square foot. However, there is a safe harbor for property that begins construction before January 30, 2023.
Under the new regulations, there are also new guidelines that allow properties to complete studies after a renovation by comparing the energy consumption before and after the renovation. This will allow older buildings to qualify for a deduction that might have been missed out on in the past. The following types of facilities commonly benefit from 179D:
- Apartments (four stories and higher)
- Manufacturing facilities
- Hotels
- Data centers
- Office buildings
- Auto dealerships
- Warehouses
- Distribution centers
How McGuire Sponsel Can Help
Alternative energy sources are growing and gaining interest, but there are many complicated issues surrounding the planning and execution of these projects. The profitability and viability of alternative energy projects hinge on understanding the tax incentives surrounding projects. McGuire Sponsel can help interpret 179D tax deductions and 45L energy inclusions, manage local incentives, perform site analyses, set up power purchase agreements, and assist with other complex issues.
What makes a great prospect post-OBBB?
179D
– New builds or renovations in excess of 30,000 square feet
– Architects or systems engineers who design buildings owned by the government or tax-exempt entities
– Construction must begin prior to June 30, 2026, to be eligible