The landscape of energy efficiency incentives has evolved significantly, and the updates to Section 179D in 2025 have positioned it as one of the most impactful tax deductions available for commercial building owners, designers, and contractors. With enhanced deduction limits, expanded eligibility, and new opportunities for retrofits, there’s never been a better time to take advantage of this powerful incentive.
Increased Deduction Amounts
One of the most exciting updates to Section 179D is the increase in deduction values. For projects placed in service in 2025:
- Base Deduction starts at $0.58 per square foot for projects that achieve at least 25% energy savings.
- Maximum Deduction reaches $1.16 per square foot for 50% energy savings.
- Enhanced Deduction jumps to between $2.90 and $5.81 per square foot for projects that meet prevailing wage and apprenticeship requirements.
This tiered structure rewards greater energy savings and incentivizes compliance with labor standards.
Lowered Energy Savings Threshold
Previously, a project needed to achieve a 50% reduction in energy consumption to qualify for 179D. Now, that threshold has been reduced to 25%, dramatically broadening the range of eligible projects. This change makes it more feasible for a variety of property types and improvement scopes to participate.
Updated Reference Standards
Projects placed in service after December 31, 2028, will now need to comply with the updated ASHRAE 90.1-2022 standards. However, buildings that began construction before January 1, 2023, can still use the older ASHRAE 90.1-2007 standard, offering flexibility based on project timelines.
Expanded Eligibility
The deduction is no longer limited to government-owned buildings. Under the new rules, tax-exempt entities such as tribal governments and nonprofit organizations can also allocate the deduction to designers of qualifying buildings. This expansion opens the door for more public-benefit projects to leverage federal incentives.
New Opportunities for Retrofits
The IRS now allows taxpayers to claim 179D deductions for energy-efficient retrofits every three years (or four years for tax-exempt entities). These retrofits must achieve at least a 25% reduction in energy use intensity compared to the building’s pre-retrofit baseline. This recurring incentive promotes ongoing improvements in energy performance.
DOE Portal and Resources
To support taxpayers in taking advantage of these deductions, the U.S. Department of Energy has introduced a web portal. This resource provides calculators and estimation tools to help users project tax benefits from energy-saving improvements in systems like lighting, HVAC, and building envelope enhancements.
Other Related Incentives
In addition to Section 179D, other energy-related tax credits have also been updated:
- Section 25C offers up to a 30% credit for residential energy-efficient home improvements.
- Section 25D continues to support residential clean energy installations like solar panels with a 30% tax credit.
Final Thoughts
The enhancements to Section 179D in 2025 have created more opportunities than ever for commercial building stakeholders to invest in energy efficiency and realize significant tax savings. With lower qualification thresholds, higher deduction amounts, and expanded eligibility, Section 179D is now a cornerstone of the government’s push for sustainable development.
Whether you’re a building owner, architect, engineer, or contractor, understanding and leveraging these updates can provide a substantial return on investment. Don’t leave money on the table—reach out to us at CSSI where our Section 179D experts can help you explore your project’s potential benefits.
