What Building Owners and Designers Need to Know Now
Quick Summary:
- As of July 1, 2026, the One Big Beautiful Bill Act (OBBBA) has officially closed the Section 179D energy efficient commercial buildings deduction to any property whose construction begins after June 30, 2026.
- Projects that broke ground on or before June 30, 2026 remain fully eligible, even if they're completed and placed in service later — the deadline applies to the construction start date, not the placed-in-service date.
- For 2026, base deductions range from $0.59 to $1.19 per square foot; projects meeting prevailing wage and apprenticeship (PWA) requirements can claim $2.97 to $5.94 per square foot.
- Owners who never claimed 179D on qualifying buildings placed in service in recent years may still be able to capture it through a lookback study — often without amending a prior return.
- Form 7205, a qualified energy study, and (for government or nonprofit buildings) a signed designer allocation letter are still required to substantiate any claim.
Section 179D has been one of the most valuable — and most overlooked — federal tax incentives available to commercial property owners, architects, and engineers. As of this month, the window for starting new construction under the deduction has officially closed. But that doesn't mean the opportunity is gone for everyone.
Here's what changed, who's still eligible, and how building owners and design firms should respond now that the deadline has come and gone.
What is the 179D Deduction, Exactly?
Also known as the EPAct 179D tax credit (a reference to its origins in the Energy Policy Act), Section 179D rewards commercial building owners and designers who improve energy performance through lighting, HVAC, hot water systems, and the building envelope. Unlike a tax credit that offsets tax liability dollar-for-dollar, 179D is a deduction calculated on a per-square-foot basis, which can translate into a substantial write-off on large commercial, industrial, or multifamily projects.
The deduction has historically applied to two groups: private building owners who invest in energy-efficient new construction or retrofits, and designers of government-owned or nonprofit buildings, since those tax-exempt entities can't use a tax deduction themselves.
The Sunset Date Has Arrived
The most important update this month is that 179D's sunset is no longer a future deadline — it's now in effect. Under the One Big Beautiful Bill Act, the deduction is terminated for any property where construction begins after June 30, 2026. That date has now passed, which means any new project breaking ground from July 1, 2026 onward no longer qualifies, full stop.
The good news for anyone already underway: eligibility is determined by when construction began, not when the building is finished. A project that broke ground on or before June 30, 2026 is still eligible under the existing rules, even if it's placed in service well into 2027 or later. For architects, engineers, developers, and building owners with projects already in the pipeline, the priority now shifts from “beat the deadline” to “document the construction start date and finish the claim correctly.”
Updated Deduction Amounts for 2025 and 2026
The IRS adjusts 179D dollar amounts annually for inflation, and the numbers that still apply to qualifying projects are as follows:
For tax years beginning in 2025, base deductions range from $0.58 to $1.16 per square foot depending on energy savings achieved (starting at a 25% improvement threshold). Projects that satisfy prevailing wage and apprenticeship requirements can claim a substantially higher deduction, from $2.90 to $5.81 per square foot.
For tax years beginning in 2026, those figures increase slightly for inflation: base deductions of $0.59 to $1.19 per square foot, and $2.97 to $5.94 per square foot for projects meeting PWA requirements.
That PWA multiplier is significant — it can mean the difference between a modest deduction and one worth hundreds of thousands of dollars on a large commercial building. Confirming whether a project meets prevailing wage and apprenticeship standards should be one of the first questions asked when evaluating 179D accelerated depreciation opportunities for any project that still qualifies.
Who Can Still Claim It — Owners and Designers
Private building owners whose qualifying energy-efficient construction or renovation began on or before June 30, 2026 can still claim the deduction directly, even now that the cutoff has passed. 179D also remains one of the only direct federal tax incentives available to architects, engineers, and design-build contractors, provided they were working on government-owned or tax-exempt buildings — public schools, municipal buildings, federal facilities, and nonprofit-owned properties — that broke ground before the deadline.
Because these tax-exempt entities can't use the deduction themselves, the building owner allocates it to the designer responsible for the energy-saving systems. That allocation must be documented with a signed allocation letter from an authorized representative of the government or tax-exempt entity, identifying the designer and confirming the allocation.
Already Missed It? Lookback Studies and Amended Returns
For owners who completed energy-efficient upgrades in recent years but never claimed 179D, the deadline passing doesn't necessarily close the door. A lookback study can identify whether a building already placed in service met the required energy savings threshold, and in many cases the deduction can be captured on the current-year tax return through a Form 3115 accounting method change, without amending a prior-year return.
Where a Form 3115 isn't the right fit, it may still be possible to claim the deduction by filing an amended return for a prior tax year, subject to the standard statute of limitations — generally three years from the original filing date. Either path means buildings placed in service in the last few open tax years, if they were never reviewed for 179D, are still worth a second look.
Form 7205 and Documentation Requirements
Claiming the deduction — whether for an in-flight project or a lookback claim — requires Form 7205, Energy Efficient Commercial Buildings Deduction, which is used to calculate the deduction, identify whether the filer is the owner or the designer, and document the required third-party certification. Along with the form, a qualifying project needs an energy study performed in accordance with IRS-approved methods, showing the required energy savings against a reference standard, plus certification from a qualified, unrelated third party.
This is where the value of a true engineering-based approach becomes clear. A 179D study isn't a paperwork exercise — it requires energy modeling, site inspection, and technical documentation that will hold up if the IRS asks questions later, especially now that every claim is effectively a final-chapter claim under a closed program.
How to Choose a Consultant for 179D Tax Incentive Claims
With the window now closed to new construction, knowing how to choose a consultant for 179D tax incentive claims matters more than ever for the projects and lookback opportunities that remain. A few questions worth asking before hiring a 179D tax specialist:
Does the firm employ licensed engineers who perform their own energy modeling and site inspections, or does it outsource the technical work? Engineering-based cost segregation studies providers that also handle 179D bring the same rigor to energy certifications that they apply to depreciation studies — and that overlap matters, since many projects benefit from claiming both incentives together.
Does the firm have direct experience with designer allocations on government and nonprofit buildings, including the allocation letter process? Can the firm produce IRS-defensible documentation and stand behind its work if a return is audited? And does the provider offer 179D tax credit services as part of a broader specialty tax practice, so a project can be evaluated holistically rather than incentive-by-incentive?
Firms that treat 179D as a standalone form-filling service tend to leave money on the table. The strongest 179D services come from firms that understand how energy deductions interact with depreciation, cost segregation, and other capital-intensive tax strategies.
Maximizing 179D Tax Deduction Value Now That the Deadline Has Passed
With the sunset date now behind us, maximizing 179D tax deduction value comes down to two things: confirming what still qualifies, and finishing the documentation correctly. Any project that began construction on or before June 30, 2026 should have its construction start date documented immediately, since that record is now the entire basis for eligibility. From there, energy studies, Form 7205 filings, and — for government and nonprofit projects — allocation letters should be completed without delay.
It's also worth running a lookback review on any commercial building placed in service in the past few years that never had a 179D study performed. And for owners of newly acquired or newly constructed property that still qualifies, pairing a 179D study with a cost segregation study remains one of the most effective ways to compress the tax benefit of a project into its earliest years, improving cash flow when it matters most.
Request a Consultation to Learn More About the 179D Tax Credit Update
The IRS 179D tax credit has now entered its final chapter for good — new construction breaking ground after June 30, 2026 no longer qualifies, but that's far from the end of the story for projects already underway or buildings that were never reviewed. Updated per-square-foot amounts, prevailing wage requirements, Form 7205, designer allocation documentation, and lookback options all still need to line up correctly for any remaining claim. Getting it right, with proper engineering support, is what separates a deduction that survives scrutiny from one that doesn't.
Engineered Tax Services | ETS has spent more than 25 years as a licensed engineering firm built specifically around specialty tax strategies, and is widely regarded as one of the best cost segregation services and 179D providers available throughout the USA. If your organization has a project that broke ground before the cutoff, or a building that may have been overlooked for 179D in past years, now is the time to talk to a team that does the engineering work in-house rather than outsourcing it — reach out to ETS to see what your building, or your in-flight project, could still be worth uld be worth before this window closes for good.
