Energy-Efficient Commercial Buildings Tax Deduction
Administered by U.S. Internal Revenue Service
This deduction is not available to homeowners—it applies only to commercial building owners and designers working on tax-exempt entity properties. If you own a commercial building and install energy-efficient systems (lighting, HVAC, insulation, windows, or roofing) that reduce energy costs by 25% or more, you may deduct up to $1.07 per square foot (or more with prevailing wage compliance) for property placed in service in 2023 and later, up to the actual installation cost. Work with a tax professional to certify your building's energy savings against ASHRAE standards and claim the deduction on your tax return.
You help commercial clients and tax-exempt entities qualify for this federal tax deduction by designing and installing energy-efficient building property—lighting systems, HVAC, water heating, building envelopes, and controls—that achieves at least 25% annual energy cost reduction compared to ASHRAE 90.1 baseline standards. Your deliverable is certification that the installed systems meet the energy savings threshold; clients can then claim $0.54–$1.07 per square foot of building area (2023 rates, indexed annually), or approximately 5 times that amount if the project meets prevailing wage and apprenticeship requirements under the Inflation Reduction Act. Note that this deduction expires for construction beginning after June 30, 2026.
This permanent federal tax deduction under IRC Section 179D incentivizes energy retrofits and new construction in commercial buildings, nonprofits, schools, and government facilities by allowing owners and designers to deduct energy-efficient property installation costs at $0.54–$1.07/sf for 2023 (indexed annually), scaling with energy savings above 25%, or up to 5× that for prevailing wage projects. The Inflation Reduction Act expanded eligibility to designers serving tax-exempt entities starting 2023 and tied bonuses to labor standards (Notice 2022-61). The program sunsets for construction beginning after June 30, 2026, and requires buildings to meet the ASHRAE standard affirmed at least 4 years before installation. Prior-year deductions reduce the annual cap, and property must qualify for depreciation/amortization.
Program details
- Program ID
- 1271
- Effective
- 1/1/2006
- Expires
- 6/30/2026Expired
- Last updated
- 7/25/2025
Eligibility
- Sectors
- commercial construction nonprofit schools state government federal government
- Technologies
- equipment insulation water heaters lighting lighting controls/sensors chillers furnaces boilers heat pumps air conditioners caulking/weather-stripping duct/air sealing building insulation windows siding roofs comprehensive measures/whole building other ee tankless water heater
Program summary
Note: Section 70507 of The One Big Beautiful Bill (OBBB) repealed this tax credit for property the construction of which begins after June 30, 2026.
The federal Energy Policy Act of 2005 established a tax deduction for energy-efficient commercial buildings applicable to qualifying systems and buildings placed in service from January 1, 2006, through December 31, 2007. This deduction was subsequently extended several times, and is now permanent.
A tax deduction is available to owners of qualified commercial buildings and designers of energy efficient commercial building property (EECBP) or energy efficient commercial building retrofit property (EEBRP) installed in buildings owned by specified tax-exempt entities, including certain government entities, Indian tribal governments, Alaska Native Corporations, and other tax-exempt organizations.
EECBP must be installed on or in a building that is located in the U.S. and within the scope of a specified ASHRAE 90.1 and the Illuminating Engineering Society of North America. Additionally, the property must be installed as part of the interior lighting systems, the heating, cooling, ventilation, and hot water systems, or the building envelope. It also must be certified as being installed as part of a plan to reduce the total annual energy and power costs for the above systems by 25% or more in comparison to a reference building meeting the minimum requirements of ASHRAE 90.1.
For EEBRP projects, a qualified building is a building located in the U.S. and originally placed in service not less than 5 years before the establishment of a qualified retrofit plan for the building.
Base Deduction
For property placed in service in 2023 and after, the deduction for EECBP equals the lesser of the cost of the installed property or a dollar figure determined by the square footage of the building and the calculated energy savings. The dollar figure is $0.50 per square foot for a building with 25% energy savings, plus $0.02 per square foot for each percentage point above 25%, up to a maximum of $1.00 per square foot for a building with 50% energy savings.
Bonus Deduction
Projects that meet the labor requirements detailed in the Inflation Reduction Act and IRS Notice 2022-61 can qualify for a higher deduction equal to $2.50 per square foot for a building with 25% energy savings, plus $0.10 per square foot for each percentage point above 25%, up to a maximum of $5.00 per square foot for a building with 50% energy savings.
Contact & resources
- Additional resources
Please verify current program details with the administering agency before making any financial decisions.
