As the tax landscape shifts in 2025, organizations planning energy-efficient construction or retrofits must act quickly if they hope to capture long-standing incentives before time runs out. The recent passage of the “One Big Beautiful Bill Act” (OBBBA) introduces a definitive sunset for the Section 179D deduction, creating both urgency and opportunity for building owners, designers, and project teams.
What is Section 179D, and Why It Has Mattered
Section 179D allows for a tax deduction tied to energy-efficient commercial building property or upgrades (EECBP / EEBRP) that meet U.S. energy standards. In recent years, the deduction was enhanced under the Inflation Reduction Act (IRA), with the potential to reach $5.81 per square foot, particularly when prevailing wage and apprenticeship requirements are satisfied.
Additionally, for certain tax-exempt entities such as municipalities, schools, and nonprofit organizations, designers (architects, engineers) can receive allocations of the deduction, allowing them to monetize the value.
Because of its structure, 179D has been a critical tool for aligning sustainability goals, project economics, and tax efficiency. But the window to use it is closing fast.
What Has Changed Under OBBBA
With the enactment of OBBBA in mid-2025, a key change is the elimination of Section 179D for buildings whose construction begins after June 30, 2026. In other words, projects must break ground on or before that date to preserve eligibility.
Many advisory firms emphasize that this sunset cannot be ignored: once construction commences after that date, energy-efficiency deductions under 179D will no longer be available.
Importantly:
- The deduction is not yet repealed for all projects; qualifying retroactive and ongoing projects remain eligible if they satisfy the timing and technical requirements.
- Projects placed in service before mid-2026 remain in scope, assuming they meet the standard energy performance thresholds and file the required documentation.
- Retroactive claims via amended returns (when permissible) can still capture deductions in past years, where missed opportunities exist.
In sum: OBBBA turns 179D from a largely open-ended incentive into a time-limited opportunity.
Why Your Planning Calendar Matters More Than Ever
Because the sunset is tied to beginning of construction, not merely placing assets in service, project scheduling and tax planning must be coordinated. Some important strategic considerations:
- Accelerate projects or break ground earlier: If you have projects in the pipeline, getting construction started before late June 2026 may preserve your deduction eligibility.
- Model and certify energy savings early: Energy modeling, design integration, site inspections, and certifications must be completed in alignment with IRS rules; delays in these steps can sink your eligibility.
- Secure allocation letters if applicable: Designers dependent on allocation from tax-exempt projects must ensure proper legal documentation and owner cooperation.
- Consider retroactive studies: For existing projects (2021–2024), a lookback or “catch-up” study may uncover unclaimed deductions. In many cases, amendments or special elections may be available.
- Optimize for prevailing wage/apprenticeship compliance: The higher end of the deduction (e.g. $5.81/square foot) often depends on meeting labor standards. That compliance is essential to claim maximum value.
If projects drag or begin too late, the 179D benefit disappears, there’s no reactivation later.
Complementary Incentives to Watch
While 179D faces a sunset, other tax incentives are evolving as well:
- R&D (Section 174) Deduction Reversal: OBBBA reinstates full immediate expensing of domestic research and experimentation costs, effective for tax years beginning after December 31, 2024. Some smaller taxpayers may apply it retroactively to 2022–2024 through amended returns.
- Bonus Depreciation & Section 179 Expensing: OBBBA also makes adjustments to bonus depreciation rules and increases the Section 179 expensing thresholds (e.g. raising the cap to $2.5 million, with a $4 million phase-out).
While these shifts aren’t specific to energy efficiency, your team should assess how they interact with capital planning, asset mix, and project timing.
Final Word: Don’t Let Time Slip Away
The repeal of Section 179D for projects starting post–June 30, 2026, marks a hard deadline for design teams, building owners, and developers who want to leverage energy-efficiency tax incentives. Miss that cutoff, and the opportunity vanishes.
If your organization has any projects underway or planned, especially with public or tax-exempt involvement, or if you believe past projects have unclaimed potential, now is the time to act. CSSI stands ready to help you map a pathway, document compliance, and extract every allowable benefit while the clock still runs. Contact us today!
