FAQ

Section 179D

What is Section 179D?

Section 179D is a federal tax deduction for installing energy-efficient systems in commercial buildings. It covers lighting, HVAC, and building envelope upgrades. Owners and, in some cases, designers can claim it.

How much can I deduct under 179D?

Deductions range from $0.59 to $1.19 per square foot at the base rate. If your project meets prevailing wage and apprenticeship requirements, that jumps to $2.97 to $5.94 per square foot. The exact amount depends on how much you reduce energy usage compared to the baseline.

Is there a deadline to qualify for 179D?

Yes. Under the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, projects must begin construction by June 30, 2026 to qualify. Projects starting after that date won't be eligible under current law. Placement in service can happen later, but the construction start date is what matters.

What buildings qualify for 179D?

Offices, warehouses, apartment buildings (4+ stories), retail centers, and industrial facilities commonly qualify. Government buildings, schools, and nonprofit facilities also qualify, with a twist: since these owners don't pay taxes, they can allocate the deduction to the building's designer instead.

Can architects and engineers claim 179D?

Yes, but only for certain buildings. If you design a qualifying government or tax-exempt building (a school, library, city hall, or nonprofit hospital, for example), the owner can allocate the deduction to you. You'll need a signed allocation letter from the owner to claim it.

What baseline is used to measure energy savings?

ASHRAE Standard 90.1, the model energy code, as of a specific reference year. Projects need to show at least 25% savings against that baseline to qualify for any deduction, scaling up to 50% for the maximum rate.

Do I need an energy model, or can I just install efficient equipment?

You need an energy model, or an approved alternative calculation method, to prove the percentage of energy savings. Installing efficient equipment isn't enough on its own. The savings have to be documented and certified.

Investment Tax Credit (ITC)

What is the Investment Tax Credit?

The ITC is a federal tax credit for installing renewable energy systems like solar. It's transitioning to the tech-neutral Clean Electricity Investment Credit (Section 48E) for projects starting in 2025. The 2026 base rate is 6%, rising to 30% if you meet prevailing wage and apprenticeship requirements.

Does claiming the ITC reduce my depreciation?

Yes. Your depreciable basis gets reduced by half the credit amount. At a 30% credit rate, that means 85% of your project cost is still depreciable. It's a tradeoff, not a free deduction on top of full depreciation.

Can the credit be recaptured?

Yes. If you sell or stop using the property in a qualifying way within five years of placing it in service, part or all of the credit can be recaptured. The recapture amount decreases the longer you hold the property within that five-year window.

Does the ITC only apply to solar?

No. Solar is the most common application, but the credit also covers geothermal, fuel cells, microturbines, small wind, waste energy, and biogas property, among others.

Can a nonprofit or tax-exempt entity use the ITC?

Yes. Provisions allow tax-exempt entities to receive a direct payment in lieu of the credit, or to transfer the credit to a taxable party, since they don't have tax liability to offset otherwise.

Cost Segregation

What is a cost segregation study?

A cost segregation study is an engineering-based analysis that reclassifies parts of a building's cost from a 39-year depreciation schedule into 5, 7, or 15-year schedules. This typically produces an immediate first-year tax benefit equal to 15-30% of the reclassified assets.

How does cost segregation work with bonus depreciation?

With 100% bonus depreciation restored, assets reclassified into shorter recovery periods through a cost segregation study can be depreciated in full in the year they're placed in service, instead of spread out over decades.

What size property makes sense for a cost segregation study?

Most specialists look for a depreciable basis of at least $300,000 to $500,000, excluding land. Below that, the study fee can eat into the savings. Above it, returns of 10 to 40 times the study fee in year one are common.

How long does a cost segregation study take?

Typically one to three months, depending on the size and complexity of the property. It involves a site visit, detailed cost analysis, and a quality control review before the report is finalized.

Does a cost segregation study trigger an IRS audit?

No. A properly documented, engineering-based study is one of the most defensible positions you can take. It follows IRS guidelines directly. Risk comes from studies that cut corners, not from doing one at all.

What happens to the accelerated deductions if I sell the property?

Depreciation taken through cost segregation is subject to recapture at sale, generally taxed as ordinary income up to the amount of depreciation claimed on personal property and land improvements. This is a standard part of exit planning, not a reason to avoid the study.

General

Do I need a licensed engineer to claim these incentives?

For 179D, yes. The energy savings have to be verified and certified by a qualified professional. For cost segregation, an engineering-based study holds up far better under IRS scrutiny than a generic estimate. This is where an engineering background makes a real difference in how defensible the numbers are.

How do I get started?

Reach out through the contact page with a short description of your project or building. We'll tell you quickly whether it's worth a deeper look, and what that would involve.