The June 30, 2026 deadline for Section 179D has now passed. For many commercial building projects, that means the opportunity to qualify for the energy-efficient commercial building deduction has closed.
But not for every project.
Section 179D is no longer available for property whose construction begins after June 30, 2026. However, projects that began construction on or before that date may still be eligible, assuming they otherwise satisfy the deduction’s documentation and filing requirements.
What kind of work may qualify?
Section 179D is tied to energy-efficient improvements in commercial buildings. It is not limited to solar, renewable energy, or “green” construction projects. Instead, it generally looks at whether certain building systems reduce energy use compared with the applicable energy-efficiency standard.
Potentially qualifying systems include:
- Interior lighting systems, such as lighting retrofits, LED conversions, and lighting controls.
- Heating, cooling, ventilation, and hot water systems, including certain HVAC upgrades, controls, and service hot water improvements.
- Building envelope improvements, such as qualifying upgrades to walls, roofs, windows, doors, insulation, or other components that affect the building’s energy performance.
The deduction may apply to qualifying property installed as part of new construction or as part of an upgrade to an existing building, including certain equipment replacements. However, for purposes of the current deadline, the important threshold is whether construction began on or before June 30, 2026.
How much is the deduction?
For 2026, Section 179D uses a per-square-foot deduction amount. The amount depends primarily on the building’s energy savings and whether the project satisfies prevailing wage and apprenticeship requirements.
For taxable years beginning in 2026, the deduction generally ranges from $0.59 to $1.19 per square foot. If the project meets the prevailing wage and apprenticeship requirements, the deduction can increase to a range of $2.97 to $5.94 per square foot. These amounts are inflation-adjusted for 2026.
The deduction generally starts at the minimum amount when the project achieves at least 25% energy savings. It increases as energy savings increase, up to the maximum amount. The IRS describes the deduction as available to building owners who increase energy efficiency in building systems by at least 25%, with an increased deduction available for higher energy savings or for satisfying prevailing wage and apprenticeship requirements.
For example, a qualifying 100,000-square-foot building could potentially generate a deduction of up to $119,000 under the regular 2026 maximum rate, or up to $594,000 if the enhanced wage and apprenticeship rules are satisfied. Actual results depend on the building, project cost, energy modeling, prior Section 179D deductions, and certification.
What are the technical requirements?
Section 179D is not self-certified by the taxpayer. A taxpayer cannot claim the deduction simply because a contractor, architect, or owner believes the building is energy efficient.
The deduction generally requires an energy-efficiency analysis using approved modeling or measurement standards, along with certification by a qualified third party. The IRS Form 7205 process requires the taxpayer to provide information about the person performing the certification.
For traditional 179D claims, the project is typically evaluated by comparing the building’s energy performance against the applicable ASHRAE reference standard. The Department of Energy also describes an alternative pathway for certain retrofit projects, generally involving a qualified retrofit plan and measured reductions in energy use intensity.
Taxpayers claiming the deduction must file Form 7205, Energy Efficient Commercial Buildings Deduction. The form is used to calculate and claim the deduction, identify whether the claimant is the building owner or designer, and provide certification and allocation information.
The practical takeaway is that Section 179D requires documentation. Building owners and designers should retain project records, square footage calculations, placed-in-service dates, construction-start documentation, energy modeling or retrofit analysis, certification materials, and any allocation documents for tax-exempt building projects.
Preserve the deduction before the paper trail goes cold
At this stage, Section 179D is less about starting new planning and more about preserving a deduction that may already have been earned. Building owners, developers, designers, and tax-exempt project stakeholders should confirm whether qualifying projects are properly evaluated, certified, allocated where applicable, and reported on Form 7205.
Our office can help you review whether a current or recently completed commercial building project may still qualify under the pre-deadline rules. If you began construction before June 30, 2026 and have questions about eligibility, documentation, certification, or claiming the deduction, please contact us to discuss next steps.