The landscape of energy efficiency incentives has evolved significantly, and the Section 179D in 2026 remains positioned 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.
However, as of June 30th, 2026, the incentive is no longer available for projects that commenced after that date. With that said, there are still opportunities to retroactively claim missed deductions.
Increased Deduction Amounts
One of the most exciting updates to Section 179D is the increase in deduction values. For projects placed in service in between 2025-June 30, 2026:
- 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
The OBBBA set a hard sunset date of June 30, 2026, meaning the incentive will no longer be available for projects commenced after that date. Prior to the OBBBA, projects placed in service after December 31, 2028, would have had to comply with the updated ASHRAE 90.1-2022 standards.
Until it’s sunset, 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 current 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
Section 179D has undergone a major shift under the One Big Beautiful Bill Act (OBBBA), which set a firm sunset for the energy-efficient buildings deduction: only projects that began construction on or before June 30, 2026 remain eligible. That deadline has now passed, but if your project broke ground before then, you may still qualify for meaningful tax savings, even if construction is ongoing or the building won’t be placed in service for some time.
If your project didn’t meet the June 30 cutoff, the door isn’t necessarily closed. Many building owners have unclaimed 179D benefits from properties placed in service in prior years, and a lookback study can often capture those savings without amending past returns.
Whether you’re a building owner, architect, engineer, or contractor, now is the time to find out where you stand. Reach out to CSSI, where our Section 179D experts can help you determine your eligibility and identify any remaining opportunities.
