In this guide
What is the Section 179D deduction?
Section 179D is a federal tax deduction for energy-efficient commercial building property: the interior lighting, the HVAC and hot water systems, and the building envelope. A project can qualify on one system or on all three, and the deduction is measured against modeled energy performance, not the equipment invoice.
Interior lighting
Fixtures, lamps, and controls that lower lighting power across the occupied floor area.
HVAC and hot water
Heating, cooling, ventilation, and service water heating equipment, plus the controls that run them.
Building envelope
Roof, walls, windows, and insulation, where the thermal assembly does the work.
Our 179D energy deduction page covers how we run 179D studies for owners and designers.
Who can claim the 179D deduction?
Building owners claim 179D directly. When the building belongs to a government, a tribal government, an Alaska Native corporation, or a tax-exempt organization, the owner can allocate the deduction to the designer of the qualifying property: the architect, engineer, or design-build contractor.
| Who | How the deduction reaches them |
|---|---|
| Owners and developers | Claim directly. Pass-through entities such as LLCs, S corporations, and partnerships pass the benefit to their owners. |
| Architects and MEP engineers | On government, tribal, Alaska Native corporation, and tax-exempt buildings, the owner can allocate the deduction to the firm that designed the qualifying work. |
| Design-build contractors | On the same buildings, the allocation can go to the contractor that designed the lighting, HVAC, or envelope systems. |
| Investors and REITs | Partnership investors receive their share through their K-1s. A REIT or other corporation claims the deduction itself and, for earnings and profits, takes it ratably over five years. |
A designer allocation is limited by the cost of the qualifying property and its installation, the same limit an owner faces.
Is 179D still available after June 30, 2026?
Yes, for qualifying work whose construction began on or before June 30, 2026. The One Big Beautiful Bill Act ended 179D for property whose construction begins after that date, but work that started in time keeps its path to the deduction whenever it is placed in service.
Every 179D date refers to the qualifying work, not the building. A renovation uses the renovation's construction start and placed-in-service dates. Because the construction start now decides eligibility, the evidence behind it carries real weight, and we document it as part of every study. The IRS has not yet issued guidance on how construction start is measured for 179D, so we document it conservatively.
Source: IRS FAQs, FS-2025-05
How much is the 179D deduction per square foot?
For tax year 2026, the deduction runs from $0.59 to $1.19 per square foot, or $2.97 to $5.94 per square foot when prevailing wage and apprenticeship requirements are met. The rate starts at 25% energy savings and rises with each percentage point of savings until it reaches the year's maximum.
| Year | Without prevailing wage | With prevailing wage |
|---|---|---|
| Tax year 2026 | $0.59 to $1.19 (+$0.02 per point) | $2.97 to $5.94 (+$0.12 per point) |
| Tax year 2025 | $0.58 to $1.16 (+$0.02 per point) | $2.90 to $5.81 (+$0.12 per point) |
| Tax year 2024 | $0.57 to $1.13 (+$0.02 per point) | $2.83 to $5.65 (+$0.11 per point) |
| Tax year 2023 | $0.54 to $1.07 (+$0.02 per point) | $2.68 to $5.36 (+$0.11 per point) |
| Placed in service 2022 | $1.88 full deduction, $0.63 per qualifying system | Not applicable |
| Placed in service 2021 | $1.82 full deduction, $0.61 per qualifying system | Not applicable |
| Placed in service 2006 to 2020 | $1.80 full deduction, $0.60 per qualifying system | Not applicable |
For tax year 2026, the maximum is reached at 55% energy savings without prevailing wage and at about 50% savings with it. Property placed in service in 2022 or earlier earns the full deduction at 50% savings, with smaller per-system amounts below that.
Only conditioned floor area (heated, cooled, or indirectly conditioned) is modeled and valued for property placed in service in 2023 or later.
Sources: IRS Rev. Proc. 2025-32, Section 4.25 · IRS Rev. Proc. 2024-40
How does prevailing wage affect the 179D deduction?
Meeting prevailing wage and apprenticeship requirements multiplies the 179D rate by five. The requirements cover the laborers and mechanics who install the qualifying property, and they apply to installation that began on or after January 29, 2023. Work whose installation began before that date is treated as meeting them.
Certified payroll and apprenticeship records are what support the higher rate, so we review them early in a study rather than at the end.
Which ASHRAE 90.1 standard applies to a 179D project?
It depends on when the qualifying work is placed in service. Energy savings are measured against a reference building built to an edition of ASHRAE Standard 90.1, and newer editions are more efficient, so the same building shows smaller savings against them.
| Qualifying work placed in service | Reference standard |
|---|---|
| 2015 through 2026 | ASHRAE 90.1-2007 |
| 2027 or 2028 | ASHRAE 90.1-2019 |
| 2029 or later | ASHRAE 90.1-2022 |
Work whose construction began before January 1, 2023 keeps ASHRAE 90.1-2007 no matter when it is placed in service. Projects finishing in 2027 or later need a closer look early, while design decisions can still change the result.
Source: IRS Announcement 2024-24
Which buildings qualify for 179D?
Commercial buildings of almost every type can qualify, along with larger multifamily buildings. The building's use and size set the reference building the energy model compares against.
- Offices, retail, warehouses, manufacturing plants, hotels, hospitals, schools, universities, and public buildings
- Multifamily buildings with 4 or more floors above grade, including student housing and senior living. Single-family homes never qualify, and neither do multifamily buildings of 3 or fewer floors.
- New construction, full renovations, and partial renovations that replace lighting, HVAC, or envelope systems
- Government, school district, university, and nonprofit buildings, through a designer allocation
What does 179D look like at the 2026 maximum rate?
Illustrative figures at the 2026 maximum of $5.94 per square foot, which requires prevailing wage and about 50% energy savings. Real projects often land below the maximum.
| Project and recipient | Claim | Square feet | Deduction |
|---|---|---|---|
| Public school, engineering firm | Allocated | 150,000 | $891,000 |
| State university, design-build firm | Allocated | 200,000 | $1,188,000 |
| Nonprofit hospital, MEP firm | Allocated | 120,000 | $712,800 |
| City library, architecture firm | Allocated | 65,000 | $386,100 |
| Private office building, building owner | Owner | 300,000 | $1,782,000 |
Each figure assumes the qualifying property cost at least as much as the deduction, and assumes no 179D deduction was taken on the building in the prior three years, or four for allocated deductions. Our 179D Deduction Calculator estimates your own buildings.
How does a 179D study work?
Every 179D deduction rests on an energy model, a site inspection, and a certification. We handle all of it and work with your CPA on the return.
- 01
Feasibility
We review your buildings and estimate the deduction for each one against our completed studies.
- 02
Documentation and modeling
We gather plans, schedules, costs, and contracts, then model the building's energy use against the reference building.
- 03
Inspection and certification
Our own engineers run the required site inspection, and the results are certified.
- 04
Deliverables
The building report, certification, Form 7205, and for designers the owner's allocation letter, ready for your CPA.
Common questions about 179D
Can a project that started construction before June 30, 2026 still claim 179D?
Yes. Qualifying work whose construction began on or before June 30, 2026 keeps its path to the deduction, even if it is placed in service years later. The dates are for the qualifying work, so a renovation uses the renovation's dates. The IRS has not yet issued guidance on how construction start is measured for 179D, so we document it conservatively.
Can architects and engineers claim 179D?
Yes, on buildings owned by a government, a tribal government, an Alaska Native corporation, or a tax-exempt organization. The owner can allocate the deduction to the firm that designed the qualifying lighting, HVAC, or envelope work, limited by the cost of that property and its installation.
How much energy savings does a building need for 179D?
The deduction starts at 25% savings against the reference building. For tax year 2026 it reaches the maximum rate at 55% savings without prevailing wage and at about 50% with it.
Do multifamily buildings qualify for 179D?
Multifamily buildings with 4 or more floors above grade can qualify, including student housing and senior living. Single-family homes and multifamily buildings of 3 or fewer floors do not.
Does 179D work with cost segregation?
Yes. The two often go together on the same building: cost segregation speeds up depreciation on the building's components, and 179D adds a deduction for the energy-efficient systems. We coordinate both so the basis is handled correctly.
Where to go next
- Talk to usBook a Discovery CallThirty minutes. We will tell you which of your projects qualify and roughly what they could be worth.
- Free tool179D Deduction CalculatorEstimate the deduction for each building you own or designed.
- Law updates179D dates and changesThe construction cutoff, the 2027 and 2029 standards, and new rates.