To determine if a building saves the required 25–50% energy, a detailed energy model must be performed. Energy modeling is essentially a computer simulation of the building’s energy use, comparing the proposed (or actual) building against a reference building that just meets the minimum code standards. In this article, we discuss how energy modeling works for 179D, and the special software requirements involved.

The Modeling Process

For the “traditional” 179D pathway, an engineer creates two virtual building models – one of the reference building (following ASHRAE 90.1 baseline specifications for insulation, HVAC efficiency, lighting power, etc.) and one of the as-built building with all the energy-efficient features included. Using approved software, they simulate the annual energy consumption (and costs) of both models. The percentage reduction in annual energy cost (not just energy usage) determines the deduction. For instance, if your building’s efficient design yields a 30% cost savings compared to the baseline, you’re in 179D territory (since it’s above the 25% threshold). If it achieves 50% savings, you hit the max deduction. The modeling must account for all regulated energy end-uses: typically lighting, HVAC, and service hot water are included, while plug loads and process loads are excluded from the savings calculation (they’re set equal in both models). The methodology is based on ASHRAE Standard 90.1’s Appendix G performance rating method, with some IRS-specific adjustments (for example, certain defaults from a 2005 DOE guidelines document). In practice, most buildings that are built to modern energy codes can achieve 25% savings over an older baseline (especially if comparing to ASHRAE 2007), so many projects qualify for at least a partial deduction.

Approved Modeling Software

Not just any energy simulation tool can be used. The IRS (with Department of Energy input) maintains a list of qualified software that meets their criteria for accuracy and compliance. Popular approved programs over the years have included DOE-2 based tools like eQUEST, EnergyPlus, Trane TRACE 700, Carrier HAP, and others. These tools are tested against ANSI/ASHRAE Standard 140 and other benchmarks to ensure they can adequately model the building systems for 179D purposes. Each software version must be specifically approved – for example, IRS notices in the late 2000s approved certain versions of Trace 700 (v6.1), EnergyPlus (v2.0), HAP (v4.34), etc.. Using an IRS-qualified software is mandatory. The certification report will explicitly state which software and version was used to generate the results. If a firm tried to use an unapproved tool, the deduction could be disallowed. Luckily, most energy modeling professionals are aware of the acceptable tools, and many of those tools are industry standards anyway. One free tool that has been widely used is eQUEST, which is built on the DOE-2 engine – it has been a workhorse for 179D analyses (and even got a shout-out since it’s specifically designed to facilitate building energy simulations for incentives). The Department of Energy’s 179D online portal even provides an estimator based on these modeling methods.

Baseline Standards and New Alternative Path

The required baseline depends on when your building is placed in service. To keep the benchmark current, Congress updated the reference standards over time. For many years (2006 through 2026), ASHRAE 90.1-2007 has been the baseline for 179D. Starting in 2027, the baseline will jump to ASHRAE 90.1-2019, which is a much tougher efficiency standard. That means it could become harder to show 25% improvements once that happens (so 2023–2026 is a bit of a sweet spot using the older baseline). Note: for a brief period, IRS had allowed 90.1-2016 for 2021-2022 projects, but IRA 2022 then overhauled the structure from 2023 onward. Speaking of which, IRA introduced an Alternative Pathway for retrofits: instead of doing a full energy model, building owners can show a certain percentage reduction in energy usage intensity (EUI) through measured utility data after retrofit. This is called the Energy Efficient Building Retrofit Deduction (EEBRP) under 179D. For the alternative method, no simulation is needed – you compare 12 months of utility bills before vs. after, normalized for weather and occupancy, to prove (for example) a 25% cut in site energy use. This is useful for existing buildings undertaking deep retrofits. The DOE’s 179D portal tool helps with these calculations via ENERGY STAR Portfolio Manager integration. However, the traditional modeling path remains the primary route, especially for new construction. Both paths ultimately yield the same deduction amounts based on percentages achieved.

Energy Modeling in Practice

The modeling step is often handled by the same firm or consultant providing the certification. They will collect data about your building: geometry, construction materials (wall R-values, window U-values), HVAC equipment specifications (efficiencies, capacities), lighting layouts (wattages, controls), operating schedules, occupancy, etc. Then they’ll construct the baseline model per ASHRAE rules and the proposed model with the upgrades. The difference in projected annual energy cost (usually calculated using standard energy prices) yields the percentage savings. One point to note is that 179D looks at energy cost savings, not just energy usage. This means electricity vs gas savings are weighted by their cost. The modeling software handles that, but it’s why sometimes an improvement in lighting (which saves expensive electricity) can contribute more to the deduction than an improvement in heating that saves natural gas.

After the simulations, you get a report saying, for example: “Building X achieves 32% annual energy cost savings compared to ASHRAE 90.1-2007 baseline, using DOE-2/eQUEST software. Therefore, it qualifies for a $1.28/sqft deduction (base $0.58 plus $0.02 per percentage point over 25%) or, if prevailing wage requirements are met, $3.20/sqft (base $2.90 plus $0.12 per point) for a total of $320,000 on 100,000 sq.ft.” – as an illustrative scenario. The incremental nature of the deduction was set by law: $0.02 per % (base path) or $0.10–0.12 per % (bonus path). But you don’t really need to remember those formulas; the certifier will compute it.

Bottom Line

Energy modeling is the analytical backbone of the 179D deduction. It provides the proof that a building’s design is truly energy efficient relative to standard practice. The use of standardized, approved software ensures consistency and fairness in how savings are measured. If you’re pursuing 179D, expect the modeling process to be part of the engagement – it might take a few weeks to compile inputs, run the models, and maybe tweak some design assumptions. Some firms may suggest minor design adjustments that could boost your energy savings percentage (thus increasing the deduction). For example, they might analyze different LED lighting specs or controls to see if you can jump from, say, 24% savings to 26% (crossing the threshold). This is where having an energy expert on the team is helpful. In summary, software simulation is required homework for 179D, but it’s a well-trodden path at this point – by leveraging tools like EnergyPlus or eQUEST and following IRS guidelines, your project’s efficiency can be quantified and translated into tax dollars.