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Unlocking Tax Savings: Retroactive Energy Efficiency Deductions for Real Estate Developers

  • Writer: R. Levi Smith III
    R. Levi Smith III
  • Sep 18
  • 2 min read

Updated: Oct 28

If you’ve completed a commercial building project in recent years, you may be sitting on an overlooked tax opportunity.


The Section 179D Energy-Efficient Commercial Building Deduction can now be claimed retroactively — potentially unlocking significant savings without amending prior tax returns.


How It Works:

  • Even if you didn’t claim the deduction when the property was placed in service, you may still be eligible.

  • By filing IRS Form 3115, developers can “catch up” on missed deductions through a method change, adjusting current-year taxable income.

  • Deductions can range from $0.54 to $5.81 per square foot, depending on efficiency levels and project timing.


Example

A 100,000 sq. ft. office building completed in 2019 could qualify for a $180,000 deduction today ($1.80 × 100,000 sq. ft.) if it meets efficiency standards — reducing taxable income immediately.


Key Steps

  • Energy Study – A qualified professional conducts a certified energy analysis to confirm compliance.

  • Confirm Eligibility – Ensure you are the property owner (not a government-allocated designer) and eligible for a method change.

  • File IRS Form 3115 – Use Designated Change #152 to claim the missed deduction via a Section 481(a) adjustment.

  • Claim Deduction – Apply the current-year deduction and reduce the property’s basis by the amount claimed.


Important Considerations

  • You must have paid for and retained ownership of the property.

  • Documentation is critical — including third-party energy certification and properly prepared filings.

  • The deduction works best when coordinated with cost segregation studies, complementing (not replacing) accelerated depreciation strategies.


Bottom Line

For developers and property owners, retroactively claiming the Section 179D deduction represents a meaningful chance to reduce taxes and improve project returns.


If you’ve completed a project in the past few years and haven’t claimed this deduction, it’s worth reviewing your eligibility now.


This is not an offer or solicitation to buy or sell any securities. 

Some of the risks related to investing in commercial real estate include, but are not limited to: market risks such as local property supply and demand conditions; tenants’ inability to pay rent; tenant turnover; inflation and other increases in operating costs; adverse changes in laws and regulations; relative illiquidity of real estate investments; changing market demographics; acts of God such as earthquakes, floods or other uninsured losses; interest rate fluctuations; and availability of financing. Investments in real estate or real estate securities are not guaranteed and have the potential to suffer losses.


This site provides brief and general description of certain tax strategies including Opportunity Zones, Sections 1031, 1033, and 721 Exchanges. There are various risks related to purchasing securities as part of any planning strategy, including tax complexity, illiquidity and restrictions on ownership and transfer. RCX Capital Group and its representatives do not provide Tax Advice. Because each prospective investor’s tax implications are different, all prospective investors should consult with their tax advisors.

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