26 U.S.C. § 179D — Energy efficient commercial buildings deduction

(a) In general A taxpayer may deduct the cost of "energy efficient commercial building property" placed in service that year. (b) Maximum amount of deduction (1) In general: The deduction for a building in a year cannot be more than: (A) the "applicable dollar value" times the building's square footage, minus (B) the total deductions already claimed under subsections (a) and (f) for that building in the 3 tax years before (or, for a deduction claimed by someone other than the taxpayer, in any of the 4 years ending with this year). (2) Applicable dollar value: Start at $0.50 per square foot. For each percentage point that the building's certified energy savings goes above 25 percent, add $0.02, up to a cap of $1.00. (3) Increased deduction amount for certain property: (A) If the property meets the wage and apprenticeship requirements in (B), the numbers in (2) change: use $2.50 instead of $0.50, $0.10 instead of $0.02, and $5.00 instead of $1.00. (B) Property requirements: this bigger deduction applies if either (i) installation starts before 60 days after the Secretary publishes guidance on paragraphs (4)(A) and (5), or (ii) installation actually meets the wage rules in (4)(A) and the apprenticeship rules in (5). (4) Prevailing wage requirements: (A) In general: the taxpayer must make sure that all workers who install the property — whether hired directly or through a contractor — are paid no less than the prevailing wage for similar construction work in that area, as set by the Secretary of Labor under the relevant federal wage law. (B) Correction and penalty: if the wage rule is broken, rules like those in section 45(b)(7)(B) apply, letting the shortfall be fixed with back pay and a penalty. (5) Apprenticeship requirements: rules like section 45(b)(8) apply — meaning a required share of labor hours must go to registered apprentices. (6) Regulations: the Secretary must issue rules to carry out this subsection, including recordkeeping and reporting rules. (c) Definitions (1) Energy efficient commercial building property: this is property that (A) can be depreciated or amortized, (B) is installed in a building located in the U.S. that falls within Reference Standard 90.1, (C) is part of the interior lighting system, the heating/cooling/ventilation/hot water system, or the building envelope, and (D) is certified under (d)(5) as part of a plan that cuts the building's total annual energy and power costs for those systems by 25 percent or more, compared with a reference building that just meets Reference Standard 90.1's minimum, using the calculation method in (d)(1). (2) Reference Standard 90.1: this means the more recent of (A) the 2007 version published by ASHRAE and the Illuminating Engineering Society, or (B) a newer version of that standard, if the Department of Energy has made a final determination on it and the Secretary has approved it for this section, at least 4 years before the property is placed in service. (d) Special rules (1) Methods of calculation: the Secretary, working with the Secretary of Energy, must write rules for calculating and checking energy and power use and cost, based on the most recent California Nonresidential Alternative Calculation Method Manual approved for this purpose at least 4 years before the property is placed in service. (2) Computer software: (A) In general: the calculation in (1) must be done using "qualified computer software." (B) Qualified computer software must (i) be certified by its designer as meeting the Secretary's required calculation procedures, (ii) generate the forms the Secretary requires for claiming this deduction, and (iii) generate a notice describing the building's energy-efficiency features and projected annual energy costs. (3) Allocation of deduction by certain tax-exempt entities: (A) In general: if the property is installed in a building owned by a "specified tax-exempt entity," the Secretary must issue rules letting the deduction go instead to the person mainly responsible for designing the property; that designer is then treated as the taxpayer. (B) Specified tax-exempt entity means (i) the federal government, a state, a U.S. possession, or any of their subdivisions or agencies, (ii) an Indian tribal government or Alaska Native Corporation as defined elsewhere, or (iii) any organization exempt from federal income tax. (4) Notice to owner: every certification under this section must explain to the building's owner the building's energy-efficiency features and projected annual energy costs, as described in (2)(B)(iii). (5) Certification: (A) In general: the Secretary sets the manner and method for certifications. (B) Procedures: the Secretary's certification process must include inspection and testing by qualified individuals, comparable (adjusting for the difference between commercial and residential buildings) to the Mortgage Industry National Accreditation Procedures for Home Energy Rating Systems. (C) Qualified individuals: only individuals recognized by a Secretary-certified organization may determine compliance. (e) Basis reduction If a taxpayer takes this deduction, the property's basis (its value for tax purposes, used later to figure gain or loss) must be reduced by the amount deducted. (f) Alternative deduction for energy efficient building retrofit property (1) In general: A taxpayer can instead elect this alternative for a "qualified building." The deduction, taken in the year of the "qualifying final certification," equals the smaller of: (A) the same kind of excess calculated under subsection (b), but using "energy use intensity" instead of "total annual energy and power costs," or (B) the total adjusted basis of the retrofit property installed under the plan (not counting the basis reduction in (e)). (2) Qualified retrofit plan: a written plan by a "qualified professional" that is expected to cut the building's energy use intensity by 25 percent or more versus its baseline. The plan must have the qualified professional (A) certify the building's energy use intensity within the year before the retrofit property is placed in service, (B) certify that the installed property meets the requirements in (3)(B) and (C), and (C) certify the building's energy use intensity again more than a year after the property is placed in service. (3) Energy efficient building retrofit property: property that (A) can be depreciated or amortized, (B) is installed in a qualified building, (C) is part of the lighting, heating/cooling/ventilation/hot water systems, or building envelope, and (D) is certified under (2)(B) as meeting (B) and (C) above. (4) Qualified building: a building that (A) is in the U.S. and (B) was first placed in service at least 5 years before the retrofit plan was created. (5) Qualifying final certification: the certification in (2)(C), but only if it shows the building's energy use intensity is now 75 percent or less of its baseline. (6) Baseline energy use intensity: (A) In general: the energy use intensity certified under (2)(A), adjusted for weather. (B) That weather adjustment is determined the way the Secretary directs. (7) Other definitions: (A) "Energy use intensity" means the yearly measured site energy use, in British thermal units, figured under Secretary rules. (B) "Qualified professional" means a licensed architect or engineer meeting any other Secretary requirements. (8) Coordination with deduction otherwise allowed under subsection (a): (A) In general: if a taxpayer elects this alternative for a building, "energy efficient commercial building property" under (c) no longer includes the retrofit property claimed here. (B) Certain rules not applicable: (i) In general: subsection (d) does not apply here, except (ii) the tax-exempt-entity allocation rule in (d)(3) still applies, with similar adjustments. (g) Inflation adjustment For tax years starting after 2022, each dollar figure in subsection (b) increases each year by the cost-of-living adjustment under section 1(f)(3), calculated using 2021 (instead of 2016) as the base year. Round any increase that is not a whole cent to the nearest cent. (h) Regulations The Secretary must issue regulations to (1) account for new energy-efficiency and renewable-energy technology, and (2) allow recapture of the deduction if the plan required under (c)(1)(D) is never fully carried out. (i) Termination This section does not apply to property whose construction starts after June 30, 2026.