A big thank you to all that joined us and participated. Please visit our webinars section to find links to upcoming CPE Webinars for CPAs. For those that weren’t able to attend the live version, the recording and an AI adjusted transcript are available below in its entirety:
🔹 Introduction: Real Estate Tax Strategies & Section 179D
AI-Assisted Transcript Breakout
Moderator (Gabe):
Hello everyone, and welcome to another excellent webinar hosted by CPA Academy. We’re thrilled to have you with us today for a session titled “Real Estate Tax Strategies: Unlocking Section 179D Energy Efficiency Deductions.” I’m Gabe, your moderator for today’s event.
Before we dive in, I’d like to run through a few quick housekeeping items and do a brief technical check. If you could, please head over to the Q&A tab in your control panel and let us know if you can hear my voice and see the presentation slide. Also, feel free to tell us one thing you hope to learn from today’s webinar.
If anyone experiences any technical issues, just drop a message in the Q&A tab—I’ll be monitoring it and helping as quickly as possible. This is also the place to post questions and comments for our presenters, which I see are already coming in from all over—Florida, Oklahoma, California, Dallas—thank you for being here!
📜 CPE & CE Credit Information
This session qualifies for 1 CPE or 1 CE credit. Your CPE certificate will be available in your CPA Academy account within 24 hours. For those who have a PTIN on file, CE credit will be submitted to the IRS at a later date.
To earn credit:
- Remain logged in for at least 55 minutes
- Answer at least 3 out of 4 polling questions
We’re also recording this webinar, and the video archive (along with your credit confirmation) will be accessible in your CPA Academy account within 24 hours. If you need to log out and back in during the session, no worries—your time will still be tracked. Lastly, we recommend downloading the presentation materials, which are available in the Handouts tab of your control panel.
With that out of the way, let’s welcome today’s presenters: Eric Tuthill and Roy Moorehead.
Eric Tuthill, CPA:
Thanks very much, Gabe, and welcome everyone.
Today’s topic is Real Estate Tax Strategies, specifically how to unlock the Section 179D Energy Efficiency Deduction for your clients. My name is Eric Tuthill, I’m a CPA and currently serve as Tax Director at Corporate Tax Advisors.
Prior to this, I was in a position very similar to many of you. I spent time working with mid-tier accounting firms, eventually launched my own practice, grew it, and ultimately sold it. So I truly understand how CPAs think about implementing tax strategies—and more importantly, how to translate complex deductions like 179D into real, tangible value for clients.
Joining me today is Roy Moorehead, who has over seven years of experience working directly with 179D studies. He’s helped taxpayers claim millions in tax savings through strategic energy-efficiency planning.
With that, let’s jump into the presentation and explore how Section 179D can become a valuable tool in your real estate tax strategy arsenal.
🔹 Structuring the Webinar: Questions Every CPA Should Ask
Eric Tuthill, CPA:
Before we dive into the technical aspects of Section 179D, I want to explain how we’ve structured today’s presentation. We designed this webinar with one clear goal in mind: to deliver the material in the most effective way possible for you—the CPA, advisor, or tax professional.
When I’m learning a new strategy that I want to apply for my clients, I ask myself a few key questions to determine whether it’s worth pursuing. That’s the lens we used to frame this entire presentation.
🧠 The Three Questions That Guide This Webinar:
- How much does Section 179D actually save taxpayers?
This is the first and most important question. If we’re going to put in the time and effort to understand and implement this deduction, we need to know what kind of impact it can make. Does it justify the effort? Can it provide meaningful tax savings? - How does the deduction work—and what authority backs it up?
Once we understand the potential savings, we need to break down how Section 179D functions. What are the logistics behind the deduction? How do we implement it? Just as important, what are the authoritative sources—IRC sections, revenue procedures, court rulings—that support it? We want to ensure we’re applying a deduction that is solidly grounded in the tax code and fully defensible. - Who qualifies—and how do we plan around it?
The final layer is identifying who this applies to. How do we spot the right taxpayer situations where 179D can be used? And once we do, how do we integrate it into a broader tax planning strategy to create maximum benefit?
That’s the framework we’ll be using throughout the session. And I believe many of you watching today likely follow a similar thought process when determining how to apply these types of strategies for your clients. It’s about asking the right questions up front so you can deliver real, measurable results.
📊 First Polling Question
Moderator (Gabe):
Thanks, Eric. Our first polling question has just launched—this is the first of four polls we’ll present today. It’ll be open for about a minute, so please take a moment to submit your response.
If you have any questions or need assistance, I’ll be monitoring the Q&A tab throughout the session. Back over to you, Eric.
🔹 How Much Does Section 179D Actually Save Taxpayers?
Eric Tuthill, CPA:
Thanks, Gabe. Now let’s get into the heart of today’s discussion—how much money can Section 179D actually save taxpayers?
As a CPA or advisor, this is always the first question I ask when evaluating a tax strategy. We all want to understand the bottom-line impact for our clients. How does this deduction translate into real numbers on a tax return? Can it offset a large tax bill? Is it worth the effort and documentation?
Ultimately, we’re all trying to justify the value we bring. Whether you’re charging hourly or working on value-based pricing, our goal is to deliver measurable savings—and Section 179D can be a powerful tool in doing exactly that.
So, to give you an idea of just how impactful this deduction can be, I’d like to introduce someone who has been working with it for years and has helped taxpayers secure millions of dollars in tax savings through 179D: Mr. Roy Moorehead from Corporate Tax Advisors.
Roy Moorehead:
Thanks, Eric! It’s great to be here with you all today. As Eric mentioned, my name is Roy Moorehead, and I’m a Senior Director at Corporate Tax Advisors. I’ve spent the majority of my career working with Section 179D and helping clients—from large corporations to small design firms—capture the full benefit of this deduction.
🏢 What Is Section 179D?
The official name of this provision is the Energy Efficient Commercial Buildings Deduction. The goal of Section 179D is to incentivize both building owners and the architecture/engineering/construction (A/E/C) industry to incorporate energy-efficient design and upgrades into new construction or retrofit projects.
179D focuses specifically on three building systems:
- HVAC systems
- Interior lighting systems
- Building envelope systems (the physical shell of the building—walls, roof, insulation, etc.)
And here’s the interesting part: the deduction isn’t limited to taxable building owners. In fact, government and non-profit buildings—which don’t pay tax and can’t use deductions—can assign the tax benefit to the designers (e.g., architects, engineers, contractors). This includes:
- K-12 schools
- Universities
- Municipal buildings
- Other publicly owned facilities
💡 Qualification: ASHRAE 90.1 Standard
Eligibility for 179D is determined based on compliance with ASHRAE 90.1-2007, a national energy efficiency standard. Buildings must demonstrate an energy reduction of at least 25%, and the benefit increases on a sliding scale up to 50% energy savings.
💰 Deduction Value: Baseline vs. Bonus Rates
The base value of the deduction starts at $0.57 per square foot and increases up to $1.13 per square foot—if the project does not meet prevailing wage and apprenticeship standards.
But under the Inflation Reduction Act (IRA), there’s now a bonus rate structure. If a project does meet prevailing wage and apprenticeship requirements, the deduction can go up to $5.81 per square foot—a nearly 5x multiplier.
Let’s look at a quick comparison:
| Energy Savings % | Without Prevailing Wage | With Prevailing Wage |
| 25% | $0.57/sf | $2.83/sf |
| 50% | $1.13/sf | $5.81/sf |
As you can see, even small improvements in energy performance, especially when paired with prevailing wage compliance, can drive massive deductions—particularly for large buildings.
🧩 Who Can Claim the Deduction?
There are two primary groups that can benefit from Section 179D:
1. Building Owners (Taxable Entities):
Owners of for-profit commercial properties—such as private equity groups, REITs, or individual investors—can claim the deduction directly. It helps them recover the cost of energy-efficient systems faster, reducing taxable income.
2. Designers of Government or Non-Profit Projects:
When a project involves a non-taxpaying entity, such as a school district or municipal government, the 179D benefit can’t be used by the building owner. Instead, the law allows the deduction to be allocated to the primary designer—usually the architect, engineer, lighting designer, or contractor responsible for the energy-efficient system.
So, for example, if you’re an architect working on a K-12 school, and that school meets the 179D energy savings requirements, you may be eligible to claim the deduction, with the appropriate allocation documentation.
Roy Moorehead (continued):
The A/E/C industry often overlooks this opportunity, especially those firms that do a lot of work for government or non-profit clients. But with 70%+ of U.S. buildings being tax-exempt, this is an incredible opportunity for design professionals to receive a direct financial incentive for the work they’re already doing.
🔹 Qualifications, Savings Examples, and the Power of Prevailing Wage
Roy Moorehead, Senior Director – Corporate Tax Advisors:
Thanks, Eric. Now that we’ve covered what Section 179D is and who can benefit from it, let’s get into the qualifications—specifically how different types of construction projects impact eligibility and potential savings.
🏗️ Renovation vs. New Construction
When applying the ASHRAE 90.1-2007 standard, which is still the active benchmark for 179D deductions, projects generally fall into one of two categories:
- Improvements/Additions (i.e., renovations or retrofits)
- New Construction
The good news is that Section 179D is available to both types of projects.
A rule of thumb:
- Renovation projects, particularly upgrades to HVAC and lighting systems, typically achieve 25% to 35% energy savings under ASHRAE.
- New construction projects usually see higher performance and can more easily exceed 40% to 60% energy savings, sometimes even more.
Because we’re still operating under the 2007 ASHRAE standard—a less stringent baseline compared to future versions—there’s never been a better time to qualify.
💵 Real-World Example: New Construction, 100,000 Sq Ft
Let’s walk through a basic example of how this deduction plays out financially.
Scenario:
- Building size: 100,000 sq ft
- Project type: New construction
- Energy savings: 50% (meets top tier under ASHRAE)
- Entity type: Flow-through (pass-through) entity
- Assumed tax rate: 30%
Without Prevailing Wage:
- Deduction = $1.13/sq ft → $113,000
- Tax savings = $113,000 × 30% = $33,900
With Prevailing Wage:
- Deduction = $5.65/sq ft → $565,000
- Tax savings = $565,000 × 30% = $169,500
Key Takeaway:
The same building and same level of efficiency generates five times the deduction when prevailing wage and apprenticeship requirements are met—purely because of IRA incentives.
🔁 Renovation vs. New Construction – Head-to-Head Comparison
Scenario: Same building (100,000 sq ft), but as a renovation hitting only 30% energy savings.
Without Prevailing Wage:
- Deduction = $0.68/sq ft → $68,000
- Tax savings = $68,000 × 30% = $20,400
With Prevailing Wage:
- Deduction = $3.39/sq ft → $339,000
- Tax savings = $339,000 × 30% = $101,700
Even for lower-efficiency projects like renovations, 179D still provides meaningful deductions—especially when prevailing wage is met.
🏛️ What Counts as a Government Entity?
Let’s clarify an important question: What do we mean by “government or public sector entities”?
Many people think “government” means military bases or federal agencies—but it’s actually much broader. Under 179D, a government entity is any non-taxpaying organization, such as:
- K-12 schools
- State universities
- Municipal buildings
- Public hospitals
- Affordable multifamily housing (if 4+ stories)
Eric and I put together a chart showing average square footage of typical government projects. The larger the building, the more powerful the deduction becomes.
🧑🏫 Case Example: High School HVAC Design (200,000 sq ft)
Let’s say your client is an engineer who designed the HVAC system for a new high school. Even if they only worked on one component, like the chiller, the IRS allows deductions based on the total building area impacted by the system—not just the equipment room.
If the school is 200,000 sq ft and the system met 35% energy savings, the engineer could qualify for:
- $159,000 deduction (if prevailing wage not met)
- $791,000 deduction (if prevailing wage is met)
That’s potentially hundreds of thousands of dollars in federal tax deductions—based solely on work they’re already doing.
📈 Higher Efficiency = Higher Deductions
Now let’s look at a scenario where that same 200,000 sq ft high school is built to a 50–60% energy savings standard (which is increasingly common with new construction).
- Without prevailing wage: $226,000 in deductions
- With prevailing wage: $340,000+ in deductions
These figures demonstrate that even when prevailing wage isn’t met, there’s still substantial value. But meeting those criteria under the Inflation Reduction Act significantly multiplies the benefit.
Eric Tuthill:
Thanks, Roy. That breakdown makes the impact really clear.
📊 Second Polling Question
Moderator (Gabe):
We’re going to pause here for our second polling question. As a reminder, you’ll need to answer at least three of the four polls today to qualify for CPE credit.
If anyone has questions, feel free to post them in the Q&A—I’m happy to help. Back to you, Eric.
Right back to you guys.
🔹 CPA Perspective: Key Red Flags and Strategic Planning
Eric Tuthill, CPA:
Thanks, Roy. I want to take a moment to step back and highlight a few things from the perspective of a CPA—because while Roy sees this from an engineering and technical qualification lens, I view it more from the tax advisor’s standpoint.
🚩 What Should CPAs Watch For?
So what are the red flags or high-level questions you need to be thinking about as a tax professional when applying Section 179D? Here are the foundational elements you should understand before recommending this deduction:
- Eligible Work Includes:
- Upgrades to HVAC systems
- Lighting system improvements
- Enhancements to the building envelope (roofing, insulation, windows, etc.)
- Or complete new construction
- For New Construction Projects:
The real estate investor or developer commissioning the project typically qualifies. So, if you have clients building large assets like apartment complexes, commercial offices, or educational facilities—they’re often in a great position to benefit.
🕰️ Why 2007 Is a Big Deal
Remember, this deduction is still benchmarked against the ASHRAE 90.1–2007 standard. That’s almost two decades ago. Energy efficiency has come a long way since then.
So practically speaking:
- If your client is building anything new right now, it’s probably exceeding the 2007 standard by default.
- For renovations or system upgrades, even relatively modest improvements can hit the 25% energy savings threshold required for 179D eligibility.
The deduction is basically asking one core question:
“Is this building at least 25% more energy-efficient than a similar one built in 2007?”
For many modern projects, that answer is yes—and that makes qualification extremely attainable.
⚖️ What About Prevailing Wage and Apprenticeship?
Now let’s talk about the Inflation Reduction Act’s new requirement: prevailing wage and apprenticeship. As we’ve already shown, meeting these standards makes a huge difference in the amount of the deduction—up to five times larger.
And this is where advisors play a crucial role.
As CPAs, we can help our clients plan ahead. The key is proactive communication. If we’re involved on the front end of a project—before construction starts—we can guide clients on how to meet prevailing wage and apprenticeship standards, especially when they’re working with general contractors or subcontractors.
This puts us in a position not only to maximize the deduction, but also to add tangible advisory value by helping clients qualify for the most advantageous treatment.
We’ll be getting into exactly how to navigate these requirements next, including tips for documentation and what to ask your clients. But the big takeaway here is this:
✅ “If you’re comparing a 2024 building to 2007 energy standards, the odds are overwhelmingly in your favor.”
As long as you’re documenting properly, Section 179D is one of the most attainable and powerful tax deductions available today—and we as advisors have a unique role in helping clients unlock its full potential.
🔹 The Evolution of Section 179D: History, Legal Framework, and Planning Opportunities
Eric Tuthill, CPA:
As we continue, I want to step back and explain how Section 179D has evolved over time, what the law currently requires, and why this deduction remains such a powerful tool—even as it becomes more complex.
📜 A Brief History of Section 179D
Section 179D was originally established in 2005 as part of the Energy Policy Act. At its core, the provision was designed to incentivize energy-efficient construction and retrofits in commercial and government buildings.
Over the years, various IRS rulings, revenue procedures, and legal interpretations have refined how the deduction works. And yes—I’ll be the first to admit—it sometimes feels like a group of engineers, architects, and tax attorneys all sat in a room and designed the most technically dense tax deduction possible… with very little thought about how a CPA would interpret it!
Still, it’s our job to understand the big picture, and then loop in engineers or energy modelers when we need precision.
🔧 From Partial to Whole-Building Analysis
Early versions of 179D allowed partial deductions for energy-efficient upgrades to individual systems (e.g., HVAC, lighting, or building envelope) without requiring full-building energy modeling.
Today, that’s no longer the case.
Now, all three systems must be modeled together, and the overall building energy performance must meet the ASHRAE 90.1-2007 standard, exceeding it by at least 25% to qualify.
To support these calculations, the IRS maintains a list of approved software programs that can be used to conduct the necessary modeling.
👷 Who Can Claim the Deduction?
There are two primary categories of taxpayers eligible for the 179D deduction:
- For-Profit Building Owners
These are typically private companies, real estate investors, and developers who either own or install qualifying energy-efficient systems. They can claim the deduction directly. - Designers of Government or Non-Taxable Buildings
Since schools, government facilities, and non-profits don’t pay taxes, they can allocate the deduction to the designer—usually an architect, engineer, contractor, or controls specialist responsible for system design. This allocation must be documented through a formal allocation letter.
This second group—designers receiving allocations from public projects—represents a huge opportunity for tax planning, especially for firms that specialize in K-12, higher education, or municipal work.
⚖️ The Impact of the Inflation Reduction Act (IRA)
One of the most significant recent changes to 179D came through the Inflation Reduction Act (IRA). It introduced:
- Expanded eligibility (including REITs)
- Increased deduction amounts (through bonus rates)
- New compliance requirements:
- Prevailing Wage
- Apprenticeship Standards
These wage/apprenticeship requirements determine whether a project qualifies for the standard deduction or the 5x bonus rate—the difference between, say, $1.13/sq ft and $5.65/sq ft.
While this creates massive opportunity, it also introduces complexity, particularly for large commercial clients who weren’t previously concerned with wage standards.
📆 Planning Tip: Grandfathered Projects Under Rev. Proc. 2023-11
The IRS addressed this complexity with Revenue Procedure 2023-11, which was a game-changer for planning.
Here’s the key point:
If construction began before January 29, 2023, the project is automatically eligible for the 5x bonus rate—even if prevailing wage and apprenticeship standards weren’t met.
For CPAs and tax advisors, this means we can look back at 2021 and 2022 projects and potentially unlock massive deductions that don’t require any new compliance documentation.
This is a time-sensitive opportunity for 2024 and 2025 tax returns. If you have clients who began construction during that window, now is the time to revisit those projects and run a 179D study. You could uncover hundreds of thousands in unclaimed deductions with little to no additional compliance burden.
🧾 Legal Precedent and Limitations
Interestingly, despite the complexity of 179D, there have only been three notable court cases involving this deduction—likely due to the technical barriers that make audits challenging for the IRS.
Here are the major takeaways:
- Deduction must be limited to cost basis
You cannot claim a 179D deduction greater than the actual installed cost of the system or improvement, regardless of the square footage model. - Designer eligibility is critical
Courts have clarified that only those who materially contribute to system design qualify for allocations. We’ll get into what counts as a “designer” shortly.
🔒 Legislative Stability: Still Standing Amid Reform
Another important point: while many parts of the Inflation Reduction Act are now under scrutiny—particularly EV credits, the Section 48 Investment Tax Credit (ITC), and other green energy provisions—Section 179D has remained untouched in recent proposed legislation.
In the latest House bill, lawmakers proposed:
- Eliminating tax on overtime and tips
- Expanding the Child Tax Credit
- Reducing other green incentives
But Section 179D remains intact, with no proposed reductions. That makes this deduction one of the most stable and bipartisan energy incentives currently on the books—supported by both sides of the aisle for its economic and environmental benefits.
This makes 179D a key piece of the tax planning puzzle for 2025 and beyond, especially for clients with real estate exposure or those working in the government/nonprofit construction space.
🔹 Two Taxpayer Paths Under Section 179D: Owners vs. Designers
Eric Tuthill, CPA:
Now that we’ve covered the legislative history and recent enhancements to Section 179D, let’s talk about how it actually plays out in the real world—specifically how it works for two distinct types of taxpayers:
- Taxpayer Type 1: For-profit owners of commercial property
- Taxpayer Type 2: Designers of energy-efficient systems for government or non-profit buildings
These groups qualify under different rules and face different limitations, so it’s critical to understand how to plan for each one.
🏢 Taxpayer Type 1: For-Profit Owners of Commercial Property
These are typically real estate investors or commercial property owners who:
- Installed qualifying HVAC, lighting, or building envelope systems
- Undertook new construction or significant energy-efficient retrofits
- Own the building and paid for the improvement themselves
If the installed improvements meet or exceed the required 25–50% energy efficiency threshold, the taxpayer can take a 179D deduction. However, the deduction is limited to the cost basis of the installed property.
💡 Example:
If you installed a $100,000 HVAC system, your deduction is limited to $100,000—regardless of the size of the building or how much square footage was involved.
⚠️ 1245 Property Treatment & Basis Reduction
It’s also important to note that the 179D deduction for building owners is treated like Section 1245 property—meaning:
- The deduction reduces the depreciable basis of the installed asset
- Upon sale, the amount deducted is recaptured as ordinary income, just like with depreciation
So even though this is a deduction, it comes with a deferred cost in the form of future gain recapture.
🕰️ Timing Deductions with Automatic Method Changes (Form 3115)
One of the best features for for-profit owners is the ability to retroactively claim the deduction using a change in accounting method under Form 3115.
Even if the energy-efficient property was placed in service years ago—say in 2021 or 2022—as long as the taxpayer still owns the property and it qualifies, you can use a 481(a) adjustment to accelerate the full deduction into the current tax year.
⚠️ But keep this in mind:
Under the new IRA rules, you can only claim 179D once every three years for a given property.
So timing matters.
📋 Planning Tip: Prevailing Wage & Contractor Cooperation
One of the key challenges for owners trying to qualify for the 5x bonus deduction is proving they met the prevailing wage and apprenticeship requirements. Here’s where it gets tricky:
- You’ll need contractor payroll records to prove compliance
- Most GCs and subcontractors are very reluctant to hand over that data
- This creates friction if you’re trying to document a claim retroactively
Best practice:
Include language in your construction contracts upfront requiring payroll transparency and apprenticeship compliance for future 179D claims.
This proactive planning allows the owner to control eligibility and maximize deductions—especially important for projects breaking ground in 2024 and beyond.
🏗️ Taxpayer Type 2: Designers of Government/Nonprofit Buildings
This includes:
- Architects
- Engineers
- Design-build contractors
- Energy consultants and controls designers
Since government and nonprofit entities can’t use deductions, the IRS allows them to allocate the 179D deduction to the project’s designer—a major benefit.
✍️ Allocation Letters
The process is surprisingly simple. The public entity signs a standard allocation letter confirming:
- The building address
- The system installed
- That the recipient was a primary designer
🧾 The government agency takes no liability, and the designer receives the full deduction.
The deduction is still limited to the cost basis of the energy-efficient property installed or designed.
✅ Clean Deduction – No Recapture
Here’s the real kicker for designers:
There’s no depreciation recapture.
Unlike building owners, designers don’t have to reduce basis or track future sale events. Once claimed, the deduction is clean and permanent.
We recently worked with a taxpayer who recovered millions in tax savings by simply identifying historic government projects and retroactively applying for 179D allocation letters.
🔄 Limitations for Designers
There are two major planning notes for designers:
- No Form 3115 Method Change
Designers cannot file a 3115. If they missed claiming a deduction, they must amend the original tax return in the year the project was placed in service. - One Deduction Per Building Every Four Years
A government or nonprofit building can only be used once every four years for 179D purposes. If another designer claimed the building recently, it’s off-limits for that time period.
We include this clause in all allocation letters to prevent conflicts and protect the integrity of the deduction.
🧠 Planning Advice for Architects & Engineers
If you’re advising a design firm, here’s what you should do:
- Review their historical projects from 2022 and 2023
- Identify projects completed for schools, public universities, hospitals, etc.
- Confirm they were the primary designer of energy-efficient systems
- Begin outreach for allocation letters and calculate potential savings
In many cases, this can result in six-figure deductions for work they’ve already completed—no additional project work required.
🔹 Who Qualifies as a “Designer” Under Section 179D?
One of the more nuanced and important aspects of Section 179D is understanding exactly who qualifies as a “designer.”
According to IRS Notice 2008-40, a designer is defined as:
“A person that creates the technical specifications for installation of energy-efficient commercial building property.”
This means that someone who simply installs, repairs, or maintains energy-efficient systems does not qualify. Instead, the person must have materially contributed to the design or engineering of the systems being installed. That includes setting the technical specifications, choosing the systems, and being involved in key decision-making about how the building performs from an energy-efficiency standpoint.
✅ Designer vs. Installer – What’s the Difference?
If your client is just doing what they’re told on a job—executing a pre-designed install, or simply maintaining systems already in place—they’re likely not a designer under the statute.
However, if they’re involved in:
- Choosing equipment (e.g., HVAC unit specs, lighting layouts)
- Writing or editing technical specs
- Submitting change orders or value-engineering proposals
- Modifying plans based on site conditions or client needs
…then they likely are a designer, and potentially eligible for the 179D allocation.
🛠️ Common Energy-Efficient System Categories
Eric Tuthill, CPA:
From a CPA’s perspective, I’m primarily looking for indicators in these key areas to determine if a client should be referred to an engineering team:
- Did they work on interior lighting systems?
- Were they involved in HVAC systems?
- Did they upgrade hot water systems?
- Did they contribute to the building envelope (roof, insulation, windows)?
If the answer is “yes” to any of these, there’s a strong possibility they were involved in qualifying work.
Roy Moorehead, Senior Director, CTA:
That’s right. And to expand on that, the broader architecture, engineering, and construction (AEC) industry includes a wide range of potential designers—not just traditional architects or engineers. It can also include:
- Lighting contractors
- Mechanical contractors
- Controls specialists
- General contractors (in design-build roles)
The key test is involvement in the design phase—what we call the “delivery method.”
📋 Common Delivery Methods That Qualify
When we evaluate potential designer eligibility, we look at how the firm was engaged in the project. Common qualifying delivery models include:
- Design-Build: The firm is responsible for both design and construction—this is the most direct route to designer status.
- Design-Assist: The contractor participates in early-stage decisions, offering advice, reviewing specs, or contributing change orders that improve the building’s efficiency.
- Value Engineering or Change Orders: Even if the company isn’t the prime designer, recommending improved equipment or methods can still count.
- Controls Integration: Especially in HVAC systems, adding smart thermostats, sensors, or advanced control systems qualifies as energy-efficient design.
💡 Examples by System Type
💡 Interior Lighting Systems
Typically handled by electrical contractors, qualifying improvements can include:
- LED lighting retrofits
- Occupancy and daylight sensors
- Dimming controls
- Re-lamping with high-efficiency fixtures
❄️ HVAC Systems
Often driven by mechanical or MEP (mechanical/electrical/plumbing) contractors, qualifying improvements can include:
- High-efficiency RTUs (rooftop units)
- VRF systems (Variable Refrigerant Flow)
- Upgraded boilers and chillers
- Smart thermostats and zoned controls
🔥 Hot Water & Heat Pumps
- Geothermal systems
- Heat pump water heaters
- Centralized domestic hot water systems
All of these may qualify as long as they contribute to reduced energy consumption and are part of a whole-building efficiency strategy.
🏗️ Building Envelope Upgrades
This refers to improvements in the shell of the building and may include:
- High R-value insulation
- Reflective roofing or cool roof systems
- High-efficiency windows (e.g., double-pane with gas fill)
- Insulated overhead dock doors
- Weather-sealing and thermal breaks
The building envelope is one of the most often-overlooked areas but is extremely important for qualifying under the ASHRAE standard.
Roy:
So, whether you’re advising architects, controls contractors, or mechanical firms, the key takeaway is: If your client influenced energy system design in any material way, they might be eligible for this deduction.
Don’t assume you need to be the lead architect. The IRS allows for multiple designers, and if your client had a legitimate role in system design, even through design-assist or value engineering, they can still qualify.
🧰 Understanding the Energy Modeling and Compliance Process for 179D
Eric Tuthill, CPA:
Let’s walk through how Section 179D works in practice—especially the behind-the-scenes process involving engineering analysis and prevailing wage requirements.
We’ve seen a lot of great questions coming in, and while we might not be able to answer all of them live, this section should give you a high-level overview of what’s happening on the engineering side of a 179D claim.
🏗️ Energy Modeling: How Efficiency is Calculated
When you engage in a 179D study, an energy modeler is brought in to assess the project. Here’s how it works:
- The modeler compares your proposed building against a baseline modeled under ASHRAE Standard 90.1-2007.
- That baseline is a standardized energy profile for similar building types from 2007—essentially a fixed point of comparison.
- Your building’s energy usage is modeled using IRS-approved software, and then compared to the ASHRAE model to calculate percent improvement.
To be valid for 179D, the final analysis must be signed off by a licensed professional engineer (PE). This engineer physically visits the site, reviews the modeling report, confirms the building conditions, and rubber-stamps the certification of compliance.
👉 In short: The engineer certifies that your building meets or exceeds the energy efficiency thresholds to qualify for the 179D deduction.
💸 What is Prevailing Wage—and Why It Matters
Now, let’s talk about Prevailing Wage, which is a critical factor in determining whether you qualify for the higher 5x deduction under the Inflation Reduction Act (IRA).
Here’s how it works:
- Prevailing wage rates are defined by the Davis-Bacon Act.
- These rates are determined through regional surveys of typical wages paid in specific geographic areas and trades.
- You can look up prevailing wage benchmarks by searching for the Davis-Bacon wage determinations online.
🔍 Example:
In one rural area of Texas, the prevailing wage listed might be $7.20/hour—essentially minimum wage. In such areas, meeting prevailing wage is not as difficult as people assume.
🧾 Certified Payroll – A Key Indicator
If your client has performed work on a federal, state, or local government project, they were likely already required to submit certified payroll under the Davis-Bacon Act or a similar state-level prevailing wage law (often called “Mini Davis-Bacon” laws).
📌 If they’re already doing certified payroll, they’re likely meeting prevailing wage.
So when advising clients, especially those who work in the public sector or do infrastructure work:
- Ask: “Are you submitting certified payroll?”
- If yes, they may already be qualified for the full 179D deduction—they just haven’t claimed it.
🧱 Apprenticeship Requirement
Alongside prevailing wage is the apprenticeship requirement, another provision added by the IRA. For tax year 2024, contractors must ensure that 15% of labor hours are performed by qualified apprentices to access the bonus deduction.
Can’t meet the threshold? There’s an out:
- Taxpayers can pay a modest penalty to the government for the apprenticeship shortfall.
- In many cases, the value of the deduction far outweighs the cost of the penalty.
📝 Proactive Planning Tip: Get It in the Contract
The biggest barrier for clients isn’t qualification—it’s documentation. Many taxpayers miss out on the 5x deduction simply because:
- They can’t obtain payroll records from contractors after the fact.
- Their contracts didn’t require any payroll cooperation or prevailing wage compliance tracking.
🔑 Solution: Help your clients bake it into their contracts.
If your client is about to start a project (or works regularly with government entities):
- Have them work with legal counsel to add 179D-specific clauses to contracts.
- Require contractors to maintain and provide certified payroll and apprenticeship tracking.
- Make prevailing wage/apprenticeship compliance a condition for final payment.
This kind of foresight ensures that the deduction is available when the time comes.
✅ Key Takeaway:
Clients often already meet prevailing wage and apprenticeship requirements without realizing it. But failing to plan ahead means they can’t prove it—and miss out on hundreds of thousands of dollars in deductions.
With proper contracting, planning, and documentation, the Section 179D deduction becomes a powerful tool not just for energy efficiency—but for strategic tax savings.
Identifying Eligible Taxpayers & Executing the 179D Study Process
Eric Tuthill, CPA:
We’ve covered how the 179D deduction works and why it’s powerful—but now, let’s focus on the big question:
How do we identify the right taxpayers and plan to their advantage?
There are several key types of clients who may benefit from Section 179D. If you’re scanning your Rolodex, keep an eye out for:
- 🏢 Property Managers
- 🏗️ Commercial Real Estate Investors & Investor Groups
- 🧱 Developers of Large Partnerships & Multifamily Projects
- 🧑🎓 Architects & Engineers working on government or nonprofit contracts
- 🔧 HVAC, Lighting, and Envelope Contractors—especially those who have done public sector work
If your client is in any of those categories, there’s a good chance they qualify—or already qualified for past projects they haven’t claimed.
🤝 What’s the Next Step?
Once you’ve identified someone who may benefit:
- Don’t guess—partner with a professional.
This deduction relies heavily on engineering data and modeling. While we CPAs can understand the tax side, you need an engineer to validate and certify the project. - Look backwards.
Many firms overlook historical deductions. We’ve helped taxpayers find millions of dollars just by going back to 2022, 2023, or even earlier and requesting allocation letters they never claimed. - Look for new or upcoming projects.
Especially for project-heavy clients or those placing assets in service in 2022–2024, you could unlock large deductions—sometimes without even needing prevailing wage documentation (thanks to the IRA grandfather window we covered earlier).
🧪 The 179D Study Process: What It Looks Like
If you’ve got a client in mind—or just want to talk through possibilities—our process is simple.
Here’s how it works:
1️⃣ Initial Call
You (or your client) can schedule a 30-minute call with our team. Use the banner link below the video to pick a time. We’re happy to talk with or without the taxpayer on the line.
2️⃣ Preliminary Project Analysis
We’ll take a high-level look at the project and determine eligibility. If it’s a government or nonprofit property, we’ll help obtain the allocation letter as the next step.
3️⃣ Modeling & Report Preparation
Our engineering team performs the energy model, handles the required documentation, and prepares a complete, IRS-compliant report—including:
- The certified energy modeling analysis
- Required tax forms and filing instructions
- PE rubber-stamped confirmation of efficiency thresholds
4️⃣ Delivery & Support
Once the report is delivered, we’ll walk you and your client through:
- How to take the deduction on their return
- What documentation to keep on file
- How to report it in case of an audit
And as always—we stand by our work. If the IRS selects the return for examination, Corporate Tax Advisors will support the taxpayer through the entire process.
❓ Final Q&A Highlights
Before we close, let’s answer a few common questions from today’s session:
Q: What’s the difference between Section 179 and Section 179D?
- Section 179: Deduction for tangible personal property and equipment; subject to business income limits.
- Section 179D: Deduction for energy-efficient commercial building upgrades; not subject to the same business income limits but does reduce asset basis.
Q: Is there a recapture rule?
Yes—for property owners, Section 179D is recaptured like depreciation if the asset is sold.
But for designers receiving an allocation? No recapture. It’s a clean, permanent deduction.
Q: Do contractors need to pay prevailing wage?
No, but you’ll only qualify for the lower base deduction if prevailing wage and apprenticeship standards are not met. If they are met, you may qualify for up to 5x the deduction.
Q: Does 179D apply to self-rental properties?
Absolutely—as long as the owner installs qualifying HVAC, lighting, or envelope systems, they may qualify, even in a self-rental situation.
🧾 Closing Remarks
Gabe (Moderator):
Thank you again to Eric Tuthill and Roy Moorehead for today’s incredible content on unlocking Section 179D energy efficiency deductions.
👉 Your CPE and CE credits will be posted in your CPA Academy account within 24 hours.
👉 For CE, credits will be uploaded to the IRS for those with a PTIN on file.
👉 Check your email inbox for the evaluation form—we’d love your feedback.
Thanks to all of you for attending. Please check the CPA Academy website for more upcoming webinars.
Have a great day, everyone!
