Unlocking Energy-Efficient
Deductions for Hotel Owners

The 179D tax deduction is an incentive for designing energy-efficient commercial buildings. Building owners can claim a tax deduction for installing qualifying energy-efficient systems.

Qualifying buildings include commercial buildings and multi-family residential buildings four stories or higher. This includes offices, retail spaces, industrial buildings, warehouses, and apartment complexes.

The deduction applies to three types of systems:

• Interior lighting
• Building envelope (roof, walls, windows, doors)
• Heating, cooling, ventilation, and hot water systems

The deduction can be up to $5.81 per square foot for buildings that achieve a 50% reduction in energy costs compared to a reference building. Partial deductions of $0.60 per square foot are available for each qualifying system.

Who can claim the 179d deduction?

The deduction can be claimed by building owners, tenants, or designers of government-owned buildings.

Can the 179d deduction be claimed for retrofits or renovations?

Yes, the deduction can be claimed for both new construction and renovations of existing buildings.

What documentation is needed to claim the 179D deduction?

You’ll need certification from a qualified individual (like a licensed engineer or contractor) that the required energy savings have been achieved. This typically involves energy modeling software to demonstrate the energy cost reductions.

How long has the 179d deduction been available?

The 179D deduction was first enacted in 2005 and has been extended and modified several times. It was made permanent in 2020 and expanded in 2022 under the Inflation Reduction Act.

Yes, the 179D deduction does reduce the basis of the property. When a commercial building owner claims the 179D energy efficiency deduction, the amount deducted is subtracted from the depreciable basis of the building. This means the cost basis used for calculating depreciation in future years will be adjusted downward by the amount of the 179D deduction claimed.

For example, if you install qualifying energy-efficient systems like HVAC, lighting, or building envelope upgrades and claim a $100,000 deduction under Section 179D, your building’s depreciable basis is reduced by that same amount. This adjustment helps prevent double-dipping on tax benefits while still offering a valuable incentive to invest in energy-efficient improvements.

CSSI helps building owners navigate both cost segregation and 179D opportunities. With a strategic approach, you can maximize tax savings while maintaining compliance with IRS requirements. When managed properly, even with the basis reduction, the 179D deduction can lead to significant upfront tax benefits that outweigh the adjustment.

The 179D deduction is a federal tax incentive designed to encourage energy efficiency in commercial buildings. It allows building owners or designers of government buildings to claim a tax deduction of up to $5.81 per square foot for qualifying improvements to lighting, HVAC, or building envelope systems. To qualify, the property must meet specific energy reduction standards as defined by IRS guidelines.

The process begins with a certified engineering analysis of the building’s energy systems. If the improvements meet or exceed the required efficiency levels, the property owner can claim the deduction for the tax year the project was placed in service. This deduction directly reduces taxable income and improves cash flow.

CSSI helps property owners and designers determine 179D eligibility, conduct the required third-party certification, and file the proper documentation. When combined with a cost segregation study, 179D can create even greater tax savings by accelerating depreciation and reducing overall tax burden.