Article
IRC section 179D inflation adjustments determined for tax year 2025
Dec. 7, 2023 · Updated Jan. 16, 2025 · Authored by Kyle Sund, Matt Lord
The Inflation Reduction Act has introduced important modifications to Internal Revenue Code (IRC) Section 179D, including annual inflation adjustments to taxpayer deductions. The adjustments for tax year 2025 were established on Oct. 22, 2024, providing significant benefits for those involved in designing and constructing energy-efficient buildings.
Who is affected by the inflation adjustment
This change primarily impacts architects, engineers, contractors, and commercial building owners. Those engaged in designing buildings owned by tax-exempt entities and taxpaying building owners developing new or existing facilities will find these adjustments particularly beneficial.
What changes with the inflation adjustment
To facilitate planning for tax years 2024 and 2025, the Section 179D inflation adjustment amounts are listed below from Revenue Procedures 2023-34 and 2024-40. The deduction per square foot ranges in the chart provide the limits of available Section 179D incentive, which correspond to 25% energy savings on the low end and 50% energy savings on the high end. Whether the prevailing wage and apprenticeship (PWA) requirements are met or if the taxpayer is exempt will also have an impact on savings.
Taxpayers would be exempt from PWA requirements if construction began before Jan. 29, 2023.
This will further reward energy efficiency efforts and make pursuing a Section 179D study feasible for more projects. Additionally, some projects placed in service during 2024 and 2025 will also receive these inflation adjustment boosts without the need to comply with the PWA requirements due to this start of construction exemption.
Related sections
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.