⚠️ Section 179D permanently eliminated after June 30, 2026. Construction must begin before this date — no extensions, no grandfathering.
OBBBA Hard Deadline
Section 179D Is Gone After June 30, 2026
The One Big Beautiful Budget Act permanently eliminates the 179D Energy Efficient Commercial Building Deduction. Up to $5.81/sq ft is on the table — but only if construction begins in time.
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Until the June 30, 2026 hard deadline (11:59 PM ET)
per square foot — maximum deduction (2025 inflation-adjusted)
Example: A 100,000 sq ft commercial building = up to $581,000 in tax deductions. A 50,000 sq ft office = up to $290,500.
What Is Section 179D?
Section 179D of the Internal Revenue Code — the Energy Efficient Commercial Building Deduction — allows commercial building owners and qualifying designers to deduct the cost of energy-efficient improvements from their federal taxes.
The deduction was made permanent by the Inflation Reduction Act (IRA) in 2022 and expanded significantly. It rewards building owners who invest in energy-reducing upgrades by delivering a dollar-for-dollar reduction in taxable income — not a credit, but a deduction.
Full Name
Energy Efficient Commercial Building Deduction (IRC § 179D)
Max Deduction
$5.81/sq ft (2025 rate, prevailing wage met)
Energy Reduction Threshold
25% reduction vs. ASHRAE standard (lowered from 50% under OBBBA)
Hard Deadline
Construction must BEGIN by June 30, 2026
After Deadline
Permanently eliminated — no extensions
Property Types
Commercial, industrial, multi-family (4+ stories)
Systems Covered
HVAC, lighting, building envelope
What OBBBA Changed About 179D
The One Big Beautiful Budget Act (OBBBA) made two major changes to Section 179D — one helps you qualify more easily, the other kills it permanently if you miss the window.
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OBBBA Changes — Effective Now
NewHard sunset added: Construction must BEGIN by June 30, 2026. Section 179D is permanently eliminated for any project not meeting this threshold — no extensions, no phase-down period.
BetterLower energy threshold: Required energy reduction dropped from 50% to 25%. Significantly more buildings now qualify that would have previously fallen short.
Removed179D eliminated post-deadline: For projects where construction has NOT begun by July 1, 2026, the deduction is gone. Permanently. This is not a tax credit sunset — it's an elimination.
Who Can Claim the 179D Deduction?
The deduction works differently depending on who owns the building and whether it's government-owned.
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Commercial Building OwnersClaim the deduction directly for improvements to their own buildings. Includes C-corps, S-corps, partnerships, and sole proprietors.
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Architects & EngineersFor government-owned buildings, designers receive an allocated deduction from the building owner. This is a unique provision for public sector projects.
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General ContractorsContractors who design and build qualifying systems on government projects may receive allocated deductions from the building owner.
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Developers & REITsReal estate developers and investment trusts owning qualifying commercial or multi-family (4+ stories) buildings can claim the deduction.
Eligible Building Systems
Section 179D covers three categories of building improvements. A project may qualify for the full deduction by upgrading all three, or a partial deduction for individual systems.
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HVAC Systems
Heating, ventilation, and air conditioning upgrades. Includes chillers, boilers, heat pumps, and energy recovery ventilation.
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Lighting
Interior and exterior lighting upgrades. LED retrofits, occupancy controls, and advanced lighting controls systems.
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Building Envelope
Roof, walls, floors, windows, and doors that reduce energy transfer. Insulation, glazing upgrades, and air sealing.
Two Ways to Qualify Before the Deadline
Projects must establish construction has "begun" before July 1, 2026 via one of two IRS-recognized methods. Either path locks in your eligibility even if the project completes after the deadline.
Path 1
Physical Work Test
Physical construction work has physically begun on the project site or at a manufacturing facility producing site-specific components.
Site preparation activities qualify
Equipment fabrication for the project qualifies
Must be more than preliminary work
Document with dated site photos and contracts
Path 2
5% Safe Harbor
Two conditions must BOTH be met before July 1, 2026:
Contracts signed before July 1, 2026
At least 5% of total project cost incurred before July 1, 2026
Incurred costs must be paid to unrelated parties
Track invoices and payments carefully
Get Your Free 179D Eligibility Checklist
We'll send you a step-by-step checklist to determine if your building qualifies, plus connections to certified 179D providers who can certify the deduction.
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Frequently Asked Questions
Under OBBBA, construction must begin by June 30, 2026. This is a hard sunset — Section 179D is permanently eliminated for any project that does not meet either the Physical Work Test or the 5% Safe Harbor before July 1, 2026. There are no extensions, no phase-down periods, and no grandfathering for projects that are "in planning."
The maximum deduction is $5.81 per square foot (2025 inflation-adjusted rate) for buildings that meet prevailing wage requirements. If prevailing wage requirements are not met, the rate is lower. Partial deductions are available for buildings where only one or two of the three systems (HVAC, lighting, envelope) are upgraded.
OBBBA lowered the energy reduction threshold from 50% to 25% compared to the ASHRAE 90.1 reference standard. This is a significant change — many buildings that previously couldn't reach the 50% bar can now qualify. If your building was borderline before, it may now clearly qualify. Get an energy model done to verify.
Yes. For government-owned buildings (federal, state, local), the building owner (a tax-exempt entity) cannot use the deduction. Instead, the deduction is allocated to the designer — the architect, engineer, or contractor primarily responsible for the energy-efficient design. This allocation must be documented in writing and the designer must certify the qualifying property.
Required documentation includes: (1) a certification from a qualified third-party engineer confirming energy efficiency standards are met, (2) energy modeling software output showing the 25%+ reduction vs. ASHRAE 90.1 reference, (3) for the deadline: dated contracts, invoices showing 5% Safe Harbor costs incurred, or site documentation for the Physical Work Test, and (4) a written allocation agreement if claiming as a designer on a government building.