IRA Section 13303 – Energy Efficient Commercial Buildings Deduction

Section 13303 of the IRA expands the existing Energy Efficient Commercial Buildings Deduction established in section 179D of the IRC. Section 179D of the IRC allows a taxpayer who owns or leases a commercial building to deduct the cost or a portion of the cost to install energy-efficient commercial property. Section 13303 of the IRA expands eligibility for the deduction. To be eligible, the installation of energy efficient property must reduce annual energy costs by at least 25% (down from 50% previously).

The amount of the deduction is calculated by multiplying the square footage of the building by a “base rate” that ordinarily starts at 50 cents. The base rate is increased by 2 cents for each percentage point by which the building’s total annual energy costs are certified to be reduced by more than 25% (up to a maximum of $1.00). The amounts are increased further if certain wage and apprenticeship requirements are met. In such cases, the base rate starts at $2.50 and may be increased by 10 cents for each percentage point by which the building’s total energy costs are reduced by more than 25% (up to a maximum of $5.00). In both cases, the total amount of the deduction must not exceed the excess (if any) of: a) the product of the applicable dollar value and the square footage of the building; over b) the aggregate amount of the deductions with respect to the building for the 3 taxable years immediately preceding such taxable year.