IRC §179D provides a first-year federal tax deduction of up to $5.94 per square foot for qualifying lighting, HVAC and hot water, and building envelope systems. Every study is certified in-house by a Professional Engineer.
The deduction ranges from $0.59 to $5.94 per square foot in 2026. The rate depends on energy savings above the applicable ASHRAE 90.1 baseline and on whether the project meets prevailing wage and apprenticeship (PWA) requirements, which multiply the base rate by five.
| Placed in service | Energy savings | Per sq ft |
|---|---|---|
| 2023 and later, with PWA | 25% to 50% or more | $2.97 to $5.94 |
| 2023 and later, without PWA | 25% to 50% or more | $0.59 to $1.19 |
| Through 2022, full | 50% or more, all three systems | Up to $1.88 |
| Through 2022, partial | Varied by system | Up to $0.63 |
The baseline is ASHRAE 90.1-2007 for property placed in service before 2027, and 90.1-2019 for most property placed in service in 2027 or 2028 (IRS Announcement 2024-24). Multifamily buildings four stories or taller qualify at the same rates. See example deductions by building type
Under the One Big Beautiful Bill Act, §179D does not apply to property whose construction began after June 30, 2026. Projects that began on or before that date still qualify when placed in service, even if construction runs into 2027 or later, and completed buildings remain eligible for look-back claims.
Physical work of a significant nature on a qualifying system began by June 30, 2026: setting HVAC equipment or running ductwork, installing envelope assemblies, or installing lighting fixtures. Custom equipment fabricated off-site under a binding written contract counts too. Planning, permits, site clearing and structural work alone do not.
At least 5% of total project cost, meaning all costs in the building's depreciable basis and not land, was paid or incurred by June 30, 2026. Materials, equipment and labor under binding contracts count. Design fees are reviewed case by case.
Either way, work must then continue toward completion. The IRS has not set a fixed continuity safe harbor for 179D, so gather binding contracts, paid invoices, construction logs and dated site photos from on or before June 30, 2026 while they are easy to reach.
IRC Section 179D provides a first-year federal tax deduction for energy-efficient systems installed in commercial buildings. It is taken in full in the year the qualifying systems are placed in service, with no depreciation schedule.
Rates expanded significantly under the Inflation Reduction Act of 2022. The deduction covers three systems: interior lighting, HVAC and hot water, and the building envelope.
Building owners claim it directly. When the building is owned by a government or tax-exempt entity, the owner allocates the deduction to the design professional instead.
For-profit owners of commercial property, multifamily buildings four stories or taller, hotels and mixed-use buildings claim on their own return. Pass-through entities flow the deduction to their owners, and REITs spread it over five years for earnings and profits purposes.
For public schools, universities, government buildings, nonprofit hospitals and tribal buildings, the deduction is allocated in writing to the firm that designed the qualifying systems. Design responsibility decides it, not the contract role. 179D for architecture and MEP firms
Four stages, typically 4 to 8 weeks for a single building and 8 to 12 weeks for a portfolio. Every study is certified by a Professional Engineer licensed in the building's state, and we work directly with your CPA.
We estimate the deduction for each building from historical study data and identify every qualifying building across the look-back window.
We review plans, schedules, costs and contracts, then model energy savings against the applicable ASHRAE 90.1 standard.
Our in-house Professional Engineers visit the building, as the IRS requires, and certify the study.
You receive the building report, PE certification and a prepared Form 7205, and we stay available to your CPA through filing.
Want more depth? The 179D Energy Deduction Guide covers rates, eligibility, allocations and examples.
IRC §179D provides a first-year federal tax deduction for energy-efficient systems installed in commercial buildings. Taken in full in the year qualifying systems are placed in service, with no depreciation schedule. It covers three qualifying systems: interior lighting, HVAC and hot water, and building envelope. Rates were significantly expanded under the Inflation Reduction Act of 2022. Under the One Big Beautiful Bill Act, projects that began construction after June 30, 2026 do not qualify, while projects that began on or before that date remain eligible when placed in service. For building owners, the deduction is claimed directly on their return. For buildings owned by government or tax-exempt entities, the deduction is allocated to the design professional who designed the qualifying systems.
In 2026, the §179D rate ranges from $0.59 to $5.94 per square foot, depending on energy savings achieved and PWA compliance. Non-PWA projects qualify for $0.59 per square foot at 25% energy savings, rising $0.02 per percentage point to $1.19 at 55% savings. PWA-compliant projects qualify for $2.97 per square foot at 25% savings, rising $0.12 per percentage point to the $5.94 maximum at 50% savings. Savings are measured against the applicable ASHRAE 90.1 reference standard.
Yes. Architects, MEP engineers, design-build contractors, and other design professionals can claim §179D when they design qualifying energy systems for buildings owned by government or tax-exempt entities: public schools, universities, hospitals, libraries, and municipal buildings. The building owner allocates the deduction to the designer. The designer's deduction is limited by the owner's installed cost of the qualifying energy systems, not by the design fee. Designers claim prior years by amending the return for the year the building was placed in service, while that year remains open, generally three years.
June 30, 2026, and it has passed. Under the One Big Beautiful Bill Act, §179D does not apply to property whose construction began after June 30, 2026. Projects that began construction on or before that date still qualify when they are placed in service, including in 2027 or later. The start date is established with the Physical Work Test (physical work of a significant nature on qualifying systems by the deadline) or the 5% Safe Harbor (at least 5% of total project cost paid or incurred by June 30, 2026), followed by continuous progress toward completion. Completed buildings are not affected and remain eligible for look-back claims.
Yes, for buildings four stories or taller. Multifamily residential buildings at four stories or more qualify under §179D at the same rates as commercial property. Apartment buildings, condominiums, and similar residential structures meeting the height requirement are eligible. Residential buildings under four stories are not eligible for §179D but may qualify for other federal or state incentives.
The PWA (prevailing wage and apprenticeship) bonus rate is five times the non-PWA base rate. Non-PWA projects qualify for $0.59 to $1.19 per square foot based on energy savings percentage. Projects complying with prevailing wage requirements and employing qualified apprentices for a specified percentage of labor hours qualify for $2.97 to $5.94 per square foot. PWA compliance must be documented and maintained throughout construction and is verified as part of the 179D study process.
Yes. Building owners can claim prior-year §179D deductions through a Form 3115 accounting method change. No amended return required. Design professionals who received allocated deductions can amend open prior-year returns under a 3-year look-back. aecre's portfolio review identifies qualifying prior-year projects before you commit to a study. Many building owners discover significant unclaimed deductions in buildings placed in service 2 to 5 years prior.
Yes, for new projects. The One Big Beautiful Bill Act terminated the §179D deduction for property whose construction began after June 30, 2026. Projects that began construction on or before that date remain eligible when they are placed in service, even if they finish in 2027 or later, and existing buildings already placed in service remain eligible for prior-year look-back studies. For those projects, documenting the construction start date is now the most important step in the claim.
Both partners, on every engagement, with the engineering and certification done in-house.
Leads the engineering, site inspections and certification on every 179D study.
Your first call, and your point of contact from scoping through delivery.
We identify qualifying buildings, project your deduction range and show what §179D is worth for your portfolio, before you commit to anything. We respond within one business day.