It’s Not Too Late: Take Advantage of IRC Section 179D

Originally enacted for energy-efficient property placed in service after December 31, 2005, Internal Revenue Code (IRC) Section 179D has long provided a powerful incentive for improving building energy performance. Over the years, this provision has undergone several significant changes and expansions, including the most recent one through the One Big Beautiful Bill Act (OBBBA).

While the OBBBA ultimately sunsets the deduction for projects beginning after June 30, 2026, there remains a valuable window of opportunity for taxpayers to benefit from this incentive. Acting now can result in substantial tax savings for eligible projects.

What Is IRC 179D?

IRC Section 179D is a federal tax deduction designed to encourage energy-efficient design and construction in commercial properties. The deduction is calculated based on a building’s total square footage and the level of energy and power cost savings achieved when compared to established industry benchmarks. Qualifying improvements generally include energy-efficient lighting systems, HVAC systems and building envelope components.

How Much Is the Deduction?

The value of the IRC Section 179D deduction is contingent on whether prevailing wage and apprenticeship requirements are met, as well as the total energy and power savings:

• • If prevailing wage and apprenticeship requirements met: A building that achieves a 25% reduction in energy and power costs may qualify for a deduction of $2.97 per square foot for 2026 projects. The deduction increases by $0.12 per square foot for each additional percentage point of energy savings, up to a maximum of $5.94 per square foot.
• • If prevailing wage and apprenticeship requirements are not met: A building that achieves a 25% reduction in energy and power costs may qualify for a deduction of $0.59 per square foot for 2026 projects. The deduction increases by $0.02 per square foot for each additional percentage point of energy savings, up to a maximum of $1.19 per square foot.

Who May Qualify?

Historically, only building owners were eligible to claim the IRC Section 179D deduction. However, changes enacted under the Inflation Reduction Act of 2022 significantly expanded eligibility.

Tax-exempt entities, such as nonprofit charitable organizations, religious institutions, private schools and colleges, private hospitals, museums, tribal governments and any other IRC 501(c) organizations are able to allocate the deductions to the architects, engineers and contractors responsible for designing the specific building energy-efficient systems.

Impact of the One Big Beautiful Bill Act

The OBBBA, signed into law on July 4, 2025, included a sunset provision for IRC Section 179D. Under this legislation, the deduction will no longer be available for projects where construction begins after June 30, 2026.

With this deadline rapidly approaching, it is critical for taxpayers to evaluate both current and planned projects to determine eligibility. In some cases, accelerating project timelines so that construction begins before the cutoff date could preserve access to this valuable deduction. Additionally, taxpayers should consider conducting retroactive reviews of previously completed projects, as there may be opportunities to claim deductions that were overlooked.

Take Action Before the Window Closes

Whether you have already benefited from IRC Section 179D or are just becoming aware of its potential, understanding how to properly identify, document and maximize these deductions is essential. With the program’s termination on the horizon, proactive planning is more important than ever.

Please contact our office to discuss your current, upcoming or past projects. We can help determine eligibility, navigate the technical requirements and ensure you fully realize the tax deductions and incentives available under IRC Section 179D while there is still time.

Contributing author: Anthony P. Pokrentowski, CPA, is a tax senior manager at the firm. He specializes in construction, manufacturing and the professional service industries, as well as multi-state entities and high-net-worth individuals. For more information on this topic, you may contact apokrentowski@dmcpas.com or (315) 472-9127.