Section 179D rewards building owners — and the architects, engineers, and contractors who design for them — for cutting a commercial building’s energy and power costs by at least 25% through lighting, HVAC, hot water, or building envelope improvements. The One Big Beautiful Bill Act put a firm expiration date on it, which changes the urgency of this deduction for anyone with a project on the drawing board in 2026.
The OBBBA Deadline: Construction Start, Not Completion
OBBBA added a termination provision: Section 179D no longer applies to property whose construction begins after June 30, 2026. Critically, the deadline is tied to when construction starts, not when the building is placed in service — a project that breaks ground on or before June 30, 2026 stays fully eligible even if it isn’t finished until 2027 or later. Anyone weighing whether to start a qualifying retrofit or new build should treat that construction-start date as the real deadline, not the eventual completion date.
How Much the Deduction Is Actually Worth
The deduction amount depends on when construction began and how much energy the improvements actually save. Projects that broke ground before January 30, 2026 could qualify for as much as $5.81 per square foot at the top efficiency tier. For 2026 generally, the base deduction ranges from roughly $0.59 to $1.19 per square foot depending on the certified percentage energy savings, with higher tiers available for projects meeting prevailing wage and apprenticeship requirements.
Designers Can Claim It Too, Not Just Owners
179D isn’t limited to the entity that owns the building. Government buildings and buildings owned by certain tax-exempt entities don’t pay income tax, so they can’t use a tax deduction themselves — instead, the owner can issue an allocation letter to the architect, engineer, or contractor primarily responsible for designing the energy-efficient system, letting that designer claim the deduction directly on their own return. This is a real, often-missed opportunity for firms that design schools, libraries, or municipal buildings.
Certification Is Not Optional
Claiming 179D requires a qualified, independent third party to certify the energy savings using approved calculation software and, in most cases, a physical inspection of the completed property. Skipping this step or relying on an unqualified certifier is the most common reason a 179D claim gets challenged on audit — the deduction is real, but only with the paperwork to back it up.
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Related reading: Section 179 vs. Bonus Depreciation and Cost Segregation Studies.
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