Energy efficient building deduction clarification

Background

IRC Section 179D allows a deduction for the cost of EECB property placed in service during the taxable year. Among other qualifying elements, property qualifies as EECB if it is installed as part of a plan to reduce the total annual energy and power costs of a building by at least 25% (50% for property placed in service before Jan. 1, 2023) in comparison to a reference building that meets the minimum requirements of the applicable energy efficiency standard, Standard 90.1 of the American Society of Heating, Refrigeration, and Air Conditioning Engineers (ASHRAE). Since 2015, the applicable version of the standard was the 2007 version, or ASHRAE Standard 90.1-2007.

In the Taxpayer Certainty and Disaster Relief Act of 2020, Congress created a way for the U.S. Department of the Treasury to periodically update the applicable standard to allow the efficiency requirements of Section 179D to keep pace with general improvements to energy efficiency generated by the market over time. In the IRA, Congress changed this updated process to provide that effective Jan. 1, 2023, the applicable reference standard would be the more recent of the 2007 version of ASHRAE Reference Standard 90.1 or the most recent version of ASHRAE Reference Standard 90.1 affirmed by Treasury not later than four years prior to the date the property is placed in service.

Announcement 2023-1 provides that ASHRAE Reference Standard 90.1-2019 is the applicable ASHRAE reference standard for property whose construction begins after Dec. 31, 2022, and that is placed into service after Dec. 31, 2026. The following reference table in Announcement 2023-1 can be used for purposes of applying the appropriate Reference Standard 90.1:

Under the announcement, taxpayers that began construction of EECB property prior to Jan. 1, 2023, will not be subject to ASHRAE Standard 90.1-2019 regardless of when the property is placed into service.