Industry Updates

Inflation Reduction Act Changes to 179D

April 19, 2023

The IRA is chock full of goodies for 179D, including triple deductions, new allocations available for non-profits and Indian tribes, and immediate deductibility for Real Estate Investment Trusts (REITs). Even with these improvements, prevailing wages and apprenticeships have come to the forefront of 179D discussions. For tax years beginning after December 31, 2022, the IRA changes the maximum (without bonus) 179D deduction to $1.00/sf. However, a taxpayer could increase that maximum deduction to $5.00/sf if it meets two new requirements related to prevailing wages and apprenticeships.

The prevailing wage requirement is as follows:

…the taxpayer shall ensure that any laborers and mechanics employed by the taxpayer or any contractor and subcontractor in the installation of any property shall be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such property is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chapter 31 of Title 40, United States Code.

In cases where government agencies, non-profits, or Indian Tribes allocate a 179D deduction to the building designer, the designer must ensure that the prevailing wage requirements are met. For general contractors and subcontractors, ensuring their direct employees meet these requirements is straightforward. General contractors can further ensure that subcontractors pay laborers prevailing wages by including language in their subcontract agreement to that effect.

However, architecture and engineering firms claiming 179D are further removed from the laborers employed by the contractors and subcontractors. How will a firm that is not a party to the labor contracts ensure that laborers are paid prevailing wages? Some contracts, such as those where the federal government is a party, must already meet prevailing wage rules under the Davis-Bacon Act (“DBA”). In those instances, the IRS might establish a safe harbor given that a law already exists that requires the company pay their construction workers a prevailing wage. For projects not falling under the DBA, architecture and engineering firms could request contractors’ pay rates and confirm that they meet the required rates. This could lead firms to vet contractors from the outset and to seek out contractors who meet the prevailing wage requirement. We expect the IRS to rely on the DBA rates found at

IMPORTANT: Taxpayers will automatically receive the increased deduction where installation of the energy efficient property began no later than 60 days after the Treasury Department publishes relevant guidance on prevailing wages and apprenticeships. There is no indication as to when the Treasury will publish guidance, but they have an incentive to do so quickly. Until then, 179D claimants should consider how these requirements will impact them and begin preparing for the transition.

Taxpayers must also meet new apprenticeship requirements to get the increased 179D rate of up to $5.00/sf. The rule is based on the new Section 45(b)(8), which requires that a certain percentage of labor hours be performed by a qualified apprentice in a registered apprenticeship program. A registered apprenticeship program is a program which is registered with the Department of Labor under the National Apprenticeship Act. These registered programs are overseen by a sponsor, which may be any person, association, committee, or organization operating and registering an apprenticeship program. A listing of sponsors can be found at

The required percentage of apprentice hours escalates to 15% over time based on when the project starts:

 Project Start Date Required Apprentice Hours
Before 1/1/2023 10%
After 12/31/2022 and before 1/1/2024 12.5%
After 12/31/2023 15%

Labor hours are the total number of hours performed for construction, alteration, or repair by employees of the taxpayer, including those employed by any contractor and subcontractor. Excluded from this number are hours worked by foremen, superintendents, owners, or persons employed in a bona fide executive, administrative, or professional capacity (“excluded hours”).

Percentage of Hours=Hours Worked by Qualified Apprentices (Total construction hours – excluded hours)Percentage of Hours=(Total construction hours – excluded hours)Hours Worked by Qualified Apprentices​

Let’s apply these considerations to real life situations.

Scenario 1: 179D Where Construction is Already Underway

Assume that new construction has already commenced but the energy efficient property will not be placed into service until 2023. In that case, the project will automatically receive the bonus increase since guidance has not yet been published and the new rules would apply to tax year 2023. The actual deduction will depend on the energy efficiency of the systems installed, ranging from nothing if it does not meet the 25% energy savings threshold, to $2.50/sf if it meets the 25% threshold, and up to $5.00/sf if it reaches the maximum 50% energy savings mark.

Scenario 2: 179D Where Construction Begins Late 2022

Assume that construction has not begun and the IRS publishes guidance on prevailing wages and apprenticeships on October 15, 2022. If the construction begins on or before Wednesday December 14, 2022 (60 days after publishing the guidance), then the project will automatically receive the bonus benefits. If construction began on December 15, then the taxpayer must show that 10% of the hours in 2022 and beyond were qualified apprentice hours and that the laborers were paid a prevailing wage. It’s unlikely that the IRS will publish guidance that quickly, but there is an incentive for them to publish given the additional revenue that will be lost in the interim.

The Building Science Consulting team at BRAYN is comprised of building scientists, engineers, HERS® raters, energy modelers, and inspectors dedicated to guiding home builders and developers to greater value. Our team can assist in identifying and securing valuable incentives such as the 45L Energy Efficient Home tax credit, 179D Energy Efficient Commercial Building deduction, Section 48 Investment Tax Credit, local utility rebate programs, and preferred financing. From initial analysis to final certification, we are experienced in all of the major green building programs including ENERGY STAR, Zero Energy Ready Home, HERS®, PHIUS, EPA Indoor Air Plus, NGBS, and others.  Visit us at or our table at the 15th Annual Tribal Casino and Hotel Development Conference for more details on the 179D Deduction and how your company may be able to capitalize on this deduction.