Business Tax Strategy · 179D
How much is the 179D deduction
worth per square foot?
Between fifty cents and five dollars per square foot, before the annual inflation adjustment. Where a building lands in that range depends on two things: how far its modeled energy savings pass twenty five percent, and whether the work was done under prevailing wage and apprenticeship rules. On a large building the second one matters more than the first.
Quick answer
- For buildings placed in service from 2023, the base deduction starts at fifty cents per square foot at twenty five percent energy savings and rises two cents for each added point, to one dollar at fifty percent.
- If the project met prevailing wage and apprenticeship rules, those figures are multiplied by five: two dollars and fifty cents to five dollars per square foot.
- Those are the statutory amounts. The IRS adjusts them for inflation each year, so the current year figures are somewhat higher.
- For buildings placed in service before 2023, the old rule applied: up to about one dollar and eighty cents per square foot, with partial amounts for a single system.
- A one hundred thousand square foot building at the full bonus rate is a five hundred thousand dollar deduction, before the inflation adjustment.
- The deduction cannot exceed the cost of the energy efficient property, less any 179D taken on the building in the prior three years.
The sliding scale, from 2023 on
Base rate
Fifty cents per square foot at a twenty five percent energy cost saving against the reference standard. Add two cents for every percentage point above that, up to one dollar at fifty percent.
Bonus rate
Five times the base rate when prevailing wage and apprenticeship rules were met on the project: two dollars and fifty cents at twenty five percent, up to five dollars at fifty percent.
Inflation adjustment
The IRS raises these amounts each year. The figures here are the statutory ones; the number for the year your building was placed in service is a little higher.
A worked example
A fifty thousand square foot office building, placed in service in 2024. The certification study models a thirty five percent energy cost saving. That is ten points past the threshold, so the base rate is fifty cents plus twenty cents: seventy cents per square foot. Without prevailing wage, the deduction is about thirty five thousand dollars. With prevailing wage and apprenticeship met, it is seventy cents times five, three dollars and fifty cents per square foot, about one hundred seventy five thousand dollars. Same building, same energy work, five times the deduction.
Buildings finished before 2023
The older rule paid up to one dollar and eighty cents per square foot, adjusted for inflation, for a whole building that hit a fifty percent saving, with a partial deduction of about sixty cents per square foot for a single qualifying system. There was no prevailing wage multiplier and the deduction could be taken once per building. If your building was placed in service before 2023 and never claimed 179D, that older rule is the one that applies to it.
What limits it
The deduction cannot be more than the cost of the qualifying property, less any 179D taken on the building in the prior three years. It reduces the building's basis. And it ends for buildings whose construction begins after June 30, 2026, under the July 2025 tax law. Whether it is a credit or a deduction, and what that means in cash, is on is 179D a credit or a deduction.
Frequently asked questions
How much is the 179D deduction per square foot?
From fifty cents to one dollar per square foot for buildings placed in service from 2023, depending on how far the energy savings pass twenty five percent. Five times that, two dollars and fifty cents to five dollars, when prevailing wage and apprenticeship requirements are met. All of it is adjusted for inflation each year.
What is a 179D deduction example?
A fifty thousand square foot office finished in 2024 with a thirty five percent modeled energy saving and prevailing wage met. The rate is seventy cents times five, three dollars and fifty cents, so the deduction is about one hundred seventy five thousand dollars before the inflation adjustment.
What is the prevailing wage bonus?
The deduction is multiplied by five if the laborers and mechanics on the project were paid prevailing wages and the apprenticeship requirements were met. On a large building it is the difference between a modest deduction and a very large one.
Is there a cap on the 179D deduction?
Yes. It cannot exceed the cost of the qualifying energy efficient property, reduced by any 179D deduction taken on the same building in the previous three years, or four years for a designer allocation.
Does the amount depend on the year?
Yes, twice over. The rules changed for property placed in service from 2023, and the per square foot amounts are adjusted for inflation every year. Two identical buildings finished a year apart can land on different numbers.
Educational content only, not tax or legal advice. Dollar figures are the statutory amounts and are adjusted for inflation each year, and the rules depend on when a property was placed in service. Talk to a licensed CPA before you act on any of it.
Want your building's number?
Square footage, what was upgraded, whether prevailing wage was paid, and the year it was finished. With those four we can tell you the range before anyone orders a study. Start with the 179D overview, send us the details, or call +1 (586) 899-1003.
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