When it comes to energy efficiency in commercial buildings, two key players often come into focus: ASHRAE and the IRS Section 179D tax deduction. While one sets the technical standard and the other provides financial incentives, they work together to promote sustainable building practices in the U.S. Here’s how they connect—and why it matters for building owners, architects, and engineers.
What is ASHRAE?
The American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America (ASHRAE) in their Standard 90.1 sets and defines the reduction in total annual energy and power costs required by the IRC 179D deduction.
ASHRAE is a global professional association seeking to advance the arts and sciences of heating, ventilation, air conditioning, refrigeration, and their allied fields. The purpose of the ASHRAE Standard 90.1 is to provide minimum requirements for the energy efficient design of commercial buildings. It explicitly excludes low-rise residential buildings of three or fewer floors. ASHRAE updates Standard 90.1 periodically.
- For EECBP placed in service before January 1, 2015, ASHRAE Standard 90.1-2001 must be used.
- For EECBP placed in service after December 31, 2014, and before January 1, 2027, ASHRAE Standard 90.1-2007 must be used.
*Taxpayers for whose EECBP construction began before January 1, 2023, may apply Reference Standard 90.1-2007 regardless of when EECBP is placed in service.
These standards define minimum energy efficiency requirements for new and existing buildings (except low-rise residential buildings). Over time, each update to ASHRAE 90.1 has become progressively more stringent.
What is IRS Section 179D?
Section 179D provides a tax deduction of up to $5.81 per square foot (as of 2025) for qualifying energy-efficient improvements to commercial and government buildings. The goal is to incentivize the design and installation of high-performance systems that significantly reduce energy usage.
Eligible systems include:
- Interior lighting
- HVAC and hot water systems
- Building envelope improvements
To qualify, the building improvements must exceed the energy efficiency benchmarks set by the ASHRAE standards in effect at the time of construction or renovation.
How Do ASHRAE Standards Tie into Section 179D?
ASHRAE standards serve as the benchmark for energy efficiency under the 179D deduction. A building must demonstrate a specified percentage of energy cost savings relative to the applicable ASHRAE standard to be eligible for the deduction.
Here’s how it works:
- Determine Applicable ASHRAE Standard: The standard used depends on the date construction began or was placed in service.
- Before 1/1/2015 Reference Standard 90.1-2001
- After 12/31/2014 and before 1/1/2027 Reference Standard 90.1-2007
- After 12/31/2026 and before 1/1/2029 Reference Standard 90.1-2019
- After 12/31/2028 Reference Standard 90.1-2022
- Model Energy Savings: A qualified third party uses IRS approved energy modeling to compare the proposed building’s performance to a baseline modeled using the applicable ASHRAE standard.
- Certification: If the modeled performance meets or exceeds the required savings thresholds (typically 25%–50%), a deduction is available.
- Allocation for Designers: For government-owned buildings, the deduction can be allocated to the architect, engineer, or contractor responsible for the energy-efficient design.
Why It Matters
Understanding ASHRAE standards is crucial for leveraging the full benefits of Section 179D:
- Maximize Deductions: Knowing which version of ASHRAE 90.1 applies helps ensure accurate modeling and compliance. This can lead to higher deductions.
- Stay Compliant: Using the wrong baseline can result in a rejected claim or an audit.
- Future Planning: As newer ASHRAE standards become more rigorous, early planning in design and construction is essential to remain eligible.
Final Thoughts
ASHRAE standards and Section 179D are two sides of the same energy-efficiency coin. ASHRAE provides the target, and Section 179D provides the reward for hitting it. Whether you’re designing a new building or retrofitting an existing one, aligning your project with the latest ASHRAE benchmarks can unlock substantial tax benefits—while also contributing to a greener future.
When you need an expert to guide you through ASHRAE Standards and how they apply for your potential Section 179D Deduction, contact us at CSSI today!
