Unlocking 179D Tax Deductions for Multifamily and Mixed-Use Developments

In the world of multifamily real estate, the 179D tax deduction stands out as a key incentive for energy-efficient buildings four stories above grade or taller, turning modern designs into substantial tax savings. Developers and investors tapping into this can often secure six to seven figure tax deductions for qualifying mid-rise, high-rise, and mixed-use projects, often enhanced by cost segregation benefits. At aecre consulting, our boutique firm leverages in-house expertise to maximize these opportunities on large-scale commercial work, from urban apartments to retail-residential hybrids. Let's dive into how 179D applies, beginning with essential qualifications.

Residential Building Qualification for 179D

At its core, the 179D tax deduction incentivizes energy efficiency in commercial buildings, including multifamily and mixed-use structures. To qualify, new build or recently renovated buildings must reduce energy and power costs by at least 25 percent compared to the ASHRAE 90.1-2007 standard through upgrades in lighting, HVAC, or the building envelope. For buildings placed in service before 2023, the threshold changes slightly.

For multifamily, a crucial requirement is that the building must have four stories above grade or higher. This threshold classifies it as commercial under tax rules, opening the door to 179D—unlike lower-rise apartments treated as residential. Mixed-use developments, blending residential with commercial elements like ground-floor shops, can qualify for the entire structure if it meets the height and efficiency criteria. The deduction is claimed in the year the building is placed in service, with maximum values inflating annually: $1.80 per square foot from 2006 to 2020, $1.82 in 2021, $1.88 in 2022, $5.36 in 2023, $5.65 in 2024, $5.81 in 2025, and $5.94 in 2026.

Real World Example for High-Rise Apartments

A real-world 179D study illustrates the value clearly. Consider a 21-story multifamily building in New Jersey, newly constructed and placed in service in 2021. At 800,000 square feet, this high-rise featured modern HVAC systems and efficient lighting that exceeded ASHRAE 90.1-2007 benchmarks. By achieving full qualification, the developer realized the maximum deduction of $1.82 per square foot, totaling over $1,456,000. This infusion helped offset construction costs in a competitive market, where urban multifamily demand was surging. We at aecre consulting have completed many similar tax deduction studies, leveraging our in-house 179D expertise to model energy savings and certify compliance seamlessly.

179D plus Cost Segregation for Apartments

Beyond the basics, pairing 179D with cost segregation amplifies value for multifamily and mixed-use owners. Cost segregation reclassifies 15 to 30 percent of the building's basis to shorter depreciation lives, accelerating deductions. For a $65 million, 300,000-square-foot mixed-use development with retail below apartments, you might shift $9.75 million to $19.5 million in personal property, yielding over $2,437,500 in first-year savings. Our engineering-driven studies ensure precision, especially in niche areas like high-rise multifamily where fixtures and systems abound. Add in 1245 fair market valuations for potential asset dispositions, and the strategy becomes a comprehensive tax playbook.

179D and the One Big Beautiful Bill

As of the end of 2025, commercial real estate trends showed robust growth in multifamily and mixed-use sectors, driven by urbanization and hybrid work models. Developers prioritized energy-efficient designs to meet tenant expectations and local green codes in growing areas, with high-rises in coastal states leading the charge. Yet, the One Big Beautiful Bill Act (OBBBA) introduces a timeline: construction must start by June 30, 2026, to qualify, based on physical work or the 5 percent safe harbor. This has prompted a rush, but 179D's history provides context. Since 2005, it has faced expiration threats multiple times, only to be extended through bills like the Tax Relief Act and Consolidated Appropriations Act. Made permanent in 2020 and supercharged by the 2022 Inflation Reduction Act, its track record of renewals suggests future adjustments could emerge, particularly amid ongoing sustainability pushes.

That resilience encourages action without panic. For instance, a 150,000-square-foot multifamily tower at $38 million, qualifying in 2025, could deduct over $871,500 at $5.81 per square foot. Or a 450,000-square-foot mixed-use complex with conditioned self-storage elements, valued at $92 million, might secure over $2,614,500 in 2025 deductions. These figures reflect maximum potential, assuming full efficiency gains. In conversations with clients, I often highlight how even partial qualifications—say, for lighting alone—add up, and it's common to outperform many of their expectations.

Start your Multifamily 179D Deduction Today

In essence, 179D transforms multifamily and mixed-use investments by rewarding forward-thinking design. The four-story height rule is straightforward, yet it unlocks substantial benefits for qualifying buildings. With OBBBA's deadline looming, starting soon keeps doors open, but the incentive's enduring legacy hints at possible evolutions. If your development fits, these deductions could reshape your financials—worth exploring for any high-rise vision.