IRS Updates Guidance on 179D Tax Deduction: What You Need to Know 

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The Internal Revenue Service (IRS) has recently updated its Large Business & International (LB&I) Process Unit guidance on the Section 179D Energy Efficient Commercial Buildings Deduction. With the introduction of Form 7205 and increased IRS scrutiny, ensuring compliance and partnering with the right provider has never been more critical. 

Key Takeaways from the IRS Guidance 

To successfully secure the 179D deduction and withstand potential audits, building owners and designers must meet the IRS’s evolving expectations. Here are three essential updates from the latest guidance: 

  • Certification Standards are Non-Negotiable – The IRS requires that energy-efficient commercial building property certifications be conducted by licensed professionals, such as engineers or contractors, using IRS-approved software and methodologies. 
  • Allocation Letters Must Be Accurate and Timely – Designers claiming 179D deductions on government-owned or tax-exempt buildings must obtain allocation letters signed by an authorized representative. These letters must contain specific building details and clearly identify all involved parties. Unclear or retroactive documentation will not be accepted. 
  • Thorough Documentation is Mandatory – The IRS expects detailed energy modeling reports, well-documented energy savings calculations, and fully substantiated project files. Incomplete records can lead to audits or denial of deductions. 

Why Choosing the Right Provider Matters 

The IRS’s heightened focus on 179D reinforces the importance of selecting a provider with the expertise to navigate compliance and maximize deductions. Before choosing a provider, consider these key questions: 

  • Does the provider have in-house energy consultants creating energy models? 
  • Does the provider have government relations personnel securing allocation letters? 
  • Does the provider have licensed Professional Engineers to certify claims? 

How Brady Martz Can Help 

At Brady Martz, we help clients navigate complex tax incentives with confidence. Our team of experienced professionals provides the expertise needed to ensure compliance, secure maximum benefits, and reduce audit risks. Contact Brady Martz today to learn how we can help.