This announcement notifies taxpayers of the applicable reference standard required to be used to determine the amount of the energy efficient commercial building property deduction allowed under §…

This announcement notifies taxpayers of the applicable reference standard required to be used to determine the amount of the energy efficient commercial building (EECB) property deduction allowed under § 179D of the Internal Revenue Code (§ 179D deduction) as amended by § 13303 of Public Law 117-169, 136 Stat. 1818, 1947 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA).1 This announcement identifies the existing reference standard, affirms a new reference standard, and clarifies when each of the two reference standards will apply to taxpayers. The effective date of this announcement is January 1, 2023.

The Treasury Department (Treasury) and the Internal Revenue Service (IRS) plan to publish additional guidance to address IRA amendments to § 179D including, but not limited to, procedures for measuring energy use intensity to calculate the alternative deduction for energy efficient building retrofit property.

In general, a taxpayer who owns or leases a commercial building that is both located in the United States and within the scope of the applicable reference standard may be allowed a § 179D deduction equal to a portion of the cost of EECB property that the taxpayer places in service during the taxable year. Property with respect to which depreciation (or amortization in lieu of depreciation) is allowable is EECB property if it is certified to be installed on or in the building as part of one or more of three of the building’s systems: (1) interior lighting systems, (2) heating, cooling, ventilation, and hot-water systems, and (3) the building’s envelope. For the installation of the property on or in the building to be considered certified, the property must be certified in the manner and method prescribed by the Secretary of the Treasury or her delegate (Secretary) as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the interior lighting systems, heating, cooling, ventilation, and hot water systems of the building by 25 percent (50 percent for taxable years beginning before January 1, 2023) or more, in comparison to a reference building that meets the minimum requirements of the applicable reference standard using certain methods of calculation.

Since § 179D was enacted in 2005, the applicable reference standard for EECB property has been identified in § 179D(c)(2) as a version of Reference Standard 90.1 as published by the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) and the Illuminating Engineering Society of North America (IES) (Reference Standard 90.1). For EECB property placed in service before January 1, 2015, Reference Standard 90.1-2001 applied. For EECB property placed in service after December 31, 2014, and before January 1, 2021, Reference Standard 90.1-2007 applied. For EECB property placed in service after December 31, 2020, § 179D(c)(2), as amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, defined “Reference Standard 90.1” to mean with respect to any property, the most recent Standard 90.1 published by the ASHRAE and the IES that has been affirmed by the Secretary, after consultation with the Secretary of Energy, for purposes of § 179D not later than the date that is 2 years before the date that construction of such property begins. Importantly, this statutory amendment changed the reference date for application of the Reference Standard 90.1 from placed in service to beginning of construction.

Section 13303 of the IRA amended § 179D for taxable years beginning after December 31, 2022. This amendment returned the reference date for application of the Reference Standard 90.1 to the date the property is placed in service. Effective January 1, 2023, § 179D(c)(2) defines the term “Reference Standard 90.1” to mean, with respect to any property, the more recent of: