The commercial real estate (CRE) market is rapidly evolving, and energy efficiency is becoming a key factor in property value, operating costs, and tax savings. Thanks to the Inflation Reduction Act, property owners now have access to expanded tax incentives under Section 179D, making energy-efficient improvements more financially rewarding than ever.
Whether you’re a building owner, investor, or developer, understanding these incentives can help you lower costs while increasing the long-term value of your properties.
What is Section 179D?
The Energy Efficient Commercial Buildings Tax Deduction (Section 179D) is a federal tax benefit that allows commercial property owners to deduct a portion of the costs associated with making their buildings more energy efficient.
The deduction has been significantly expanded under the Inflation Reduction Act, with updated provisions that provide greater financial benefits.
Key Benefits for Commercial Real Estate Investors
✔️ Larger Tax Deductions – Eligible property owners can claim deductions starting at $2.50 per square foot, with the potential to increase up to $5.00 per square foot if additional energy savings benchmarks are met.
✔️ Wider Eligibility – Previously available mostly to government-owned properties, the deduction now applies to private commercial buildings and certain tax-exempt entities, broadening its reach.
✔️ Reduced Operating Costs – Energy-efficient buildings consume less electricity and gas, which leads to lower utility bills and increased net operating income (NOI).
✔️ Sustainability & ESG Compliance – With growing investor and tenant demand for sustainable real estate, implementing energy-efficient upgrades helps meet Environmental, Social, and Governance (ESG) goals while improving property appeal.
✔️ Competitive Advantage – Properties with energy-efficient certifications and upgrades tend to attract higher-quality tenants and achieve higher occupancy rates in the long run.
What Types of Energy Improvements Qualify?
To claim the Section 179D deduction, properties must implement energy-efficient upgrades in the following categories:
Interior Lighting Systems – Installing high-efficiency LED lighting and smart lighting controls.
HVAC & Building Controls – Upgrading heating, ventilation, and air conditioning (HVAC) systems to reduce energy consumption.
Building Envelope – Improving insulation, windows, and roofing to enhance thermal performance and reduce energy waste.
To qualify, these upgrades must reduce a building’s total energy and power costs by at least 25% compared to a reference building. The greater the energy savings, the larger the tax deduction.
Who Can Benefit from Section 179D?
- Commercial property owners investing in building improvements.
- Real estate investors & developers upgrading their properties to meet modern energy standards.
- Architects & engineers who design energy-efficient commercial properties may also be eligible for deductions.
- Tax-exempt entities (such as non-profits and universities) that enter into partnerships for energy-efficient upgrades.
How to Claim the 179D Tax Deduction
- Conduct an Energy Audit – Work with a qualified energy consultant to evaluate current energy use and determine eligible upgrades.
- Implement Upgrades – Ensure improvements meet ASHRAE standards (industry benchmarks for energy efficiency).
- Obtain Certification – Have your property evaluated by a third-party qualified professional to certify the energy savings.
- File the Deduction – Work with a tax professional to ensure proper documentation and compliance when filing.
Final Thoughts from The Bill Gladstone Group
Energy-efficient properties aren’t just good for the environment—they save money, increase property value, and attract high-quality tenants. With the expanded Section 179D deduction, now is an excellent time for CRE investors and property owners to make strategic upgrades that lower costs and improve long-term returns.
At The Bill Gladstone Group, we specialize in helping investors navigate the evolving CRE market and identify properties with strong investment potential. If you’re considering energy-efficient upgrades or looking for commercial properties that align with sustainability incentives, contact us today to explore the best opportunities.