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Section 179D provides a federal tax incentive for the installation of energy-efficient property in commercial buildings, specifically targeting:
Qualifying Systems
Interior Lighting: Energy-efficient lighting systems designed for the building's interior.
HVAC and Hot Water: Heating, ventilation, air conditioning, and service hot water systems.
Building Envelope: Components that separate the interior from the exterior, such as roofing, windows, and insulation.
Who Qualifies
Commercial Building Owners: Businesses that own and improve their commercial properties.
Tenants: Building tenants who make construction expenditures for energy-efficient upgrades.
Design Professionals: Architects, engineers, contractors, and other designers of record who create technical specifications for energy-efficient property in buildings owned by tax-exempt entities.
Specified Tax-Exempt Entities: This category includes federal, state, and local governments, Indian tribal governments, Alaska Native corporations, and non-profit organizations.
Financial Benefits ($)
Deduction Calculation: Benefits are calculated on a per-square-foot basis once a minimum of 25% energy cost savings is achieved compared to a specific reference standard.
Sliding Scale: The deduction amount increases for every percentage point of energy savings achieved above the 25% baseline.
2025 Rates: The base deduction ranges from $0.58 to $1.16 per square foot.
2026 Rates: Due to inflation adjustments, the base deduction increases to a range of $0.59 to $1.19 per square foot.
Bonus "PWA" Multiplier: The deduction amount increases five-fold if the project satisfies Prevailing Wage and Apprenticeship requirements.
Maximum Bonus Values: With PWA compliance, the maximum deduction is $5.81 per square foot for 2025 and rises to $5.94 per square foot for 2026.
Sunset Date Under the One Big Beautiful Bill Act, the Section 179D deduction is scheduled to expire for any property where construction begins after June 30, 2026.
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