OBBBA Changes: 179D for CRE Owners, Developers, and Investors

I often see commercial real estate owners and developers light up when they learn about the 179D tax deduction. This incentive rewards energy-efficient designs in buildings, delivering substantial savings that can transform project economics. But recent legislative shifts, particularly from the One Big Beautiful Bill Act (OBBBA), have everyone asking about timelines and next steps. Let's break it down factually, with an eye on what it means for your projects.

179D Tax Deduction Review

First, a quick refresher on the 179D tax deduction: it's available for commercial buildings or multifamily structures over four stories that meet energy efficiency standards based on ASHRAE 90.1-2007. Qualifying properties reduce energy costs by at least 25 percent (for projects placed into service as of 2023) through improvements in interior lighting, HVAC, and/or the building envelope. Owners claim it directly, while designers like architects or engineers can have the value allocated by government or nonprofit projects. The maximum deduction adjusts annually for inflation; for 2026, it's up to $5.94 per square foot.

OBBBA Impacts to 179D

Now, enter OBBBA, passed earlier this year. This act introduces a key change: a sunset provision for 179D. To qualify, construction must begin on or before June 30, 2026. That's the hard deadline based on the start date, not when the building is placed in service. So, if your team breaks ground by mid-2026, you can still claim the deduction even if completion stretches into 2027 or beyond. What counts as "beginning construction"? The IRS looks at two tests: the Physical Work Test, like starting excavation or pouring foundations, or the 5% Safe Harbor, where you've incurred at least 5 percent of total costs through contracts and payments. Planning or securing permits alone won't cut it.

This deadline has sparked urgency in the commercial real estate sector. Think about a 2025, new build, 150,000-square-foot office building in a bustling urban area, costing around $35 million. If it qualifies under ASHRAE 90.1-2007 standards, the owner could deduct over $871,500 in 2025—that's real cash flow to reinvest. Or consider a 400,000-square-foot high-rise multifamily project at $85 million; hitting the max could yield over $2,324,000 for the same tax year. These aren't hypotheticals; they're the kind of large-scale work we're seeing more of at aecre consulting, especially in niche areas like hotels and conditioned self-storage, where energy efficiency pays off big.

179D's Future after the OBBBA

Despite the looming qualification deadline, 179D's history requires a nuanced perspective. Since its inception in 2005, the deduction has faced multiple expiration dates, but Congress has always extended it before any lapse—through acts like the Tax Relief Act and the Consolidated Appropriations Act. It evolved from a temporary measure to permanent status in 2020, then got boosted by the Inflation Reduction Act in 2022. This pattern suggests that while OBBBA sets a firm line at June 30, 2026, for construction starts, future tweaks aren't out of the question. Lawmakers often respond to industry needs, especially with sustainability goals in play.

That said, waiting isn't wise. I've chatted with developers who delayed on past incentives, only to scramble later. At aecre consulting, we stay ahead of these shifts, guiding clients through 179D certifications and other integrated strategies.

OBBBA Bottom Line for 179D

Whether your portfolio includes midsize commercial spaces or larger developments, the OBBBA deadline underscores the need to plan now. Energy modeling against ASHRAE 90.1-2007 is straightforward with the right team, and the rewards are immediate.

In short, OBBBA draws a line in the sand for 179D, but given the incentive's resilient track record, it might not be the final word. For real estate owners, developers, and investors eyeing tax efficiency, starting construction by mid-2026 keeps options open. If you're evaluating a project, consider how these tools fit— the savings could be game-changing.