Eligibility & requirements. Section 179D allowed a federal tax deduction for energy-efficient commercial building property - interior lighting, heating/cooling/ventilation and hot water systems, and the building envelope - certified to reduce energy and power costs by at least 25% relative to the applicable ASHRAE 90.1 reference standard. Eligible claimants included commercial building owners and, for buildings owned by specified tax-exempt entities (governments, tribes, nonprofits), the designers primarily responsible for the systems, via an allocation letter.
What you get. The deduction was calculated per square foot on a sliding scale tied to modeled energy savings, with substantially higher amounts for projects meeting prevailing wage and apprenticeship requirements. The IRS publishes inflation-adjusted figures for each tax year.
Deadlines. Under the One Big Beautiful Bill Act (Public Law 119-21), the deduction "will not be allowed with respect to any property the construction of which begins after June 30, 2026," per IRS FAQs announced in IR-2025-86. That date has passed: no new projects can qualify.
How it works. Historically, claimants obtained third-party certification and energy modeling of the building's systems, then claimed the deduction on their tax return (designers used Form 7205). Projects that began construction on or before June 30, 2026 may still qualify when placed in service, and designers may still pursue allocated deductions for eligible prior projects within open tax years.
How a grandfathered project still claims it. Projects that began construction on or before June 30, 2026 follow the path 179D always used: (1) confirm the building and systems fall in an eligible category (interior lighting, HVAC and hot water, or the building envelope); (2) commission the energy modeling that compares the building against the applicable ASHRAE 90.1 reference standard and documents at least a 25% reduction in energy and power costs; (3) obtain the required third-party certification of the modeled savings; (4) where the building is owned by an eligible tax-exempt entity, the owner issues an allocation letter assigning the deduction to the designer primarily responsible for the systems; (5) claim the deduction on the tax return for the year the property is placed in service - allocated designers report on Form 7205. The per-square-foot amount comes from the IRS inflation-adjusted schedule for the relevant year, on the sliding scale tied to modeled savings, with the higher amounts reserved for projects meeting the prevailing wage and apprenticeship requirements.
Documents to keep together. The certification and the underlying energy model, the allocation letter for designer claims, the dated evidence of when construction began (the June 30, 2026 line is the eligibility fact for any remaining project), placed-in-service dates, and the filed return with Form 7205 where it applies. Remaining claims live in open tax years, so the file has to survive an IRS question years after the building opens.
How it stacked with other incentives. The deduction reduced taxable income rather than refunding cost, and it sat alongside, not instead of, project financing and any state or utility incentives a project qualified for; its value depended on the claimant's tax position, which is why owners and designers modeled it with a tax professional before relying on it in a pro forma.
Questions owners and designers still ask. Can a new project still qualify? No - property whose construction begins after June 30, 2026 is outside the deduction. Can a project already under construction before that date still claim it? Yes, when it is placed in service and meets the certification rules above. Who claims it on a public or nonprofit building? The designer allocated the deduction by the owner, not the tax-exempt owner itself. Is the whole building the unit of the test? The savings test runs against the applicable ASHRAE 90.1 reference building for the systems being certified.
Important notes. This entry is retained for reference because 179D was a major commercial incentive and many existing projects remain in the pipeline. It is not available for new construction starting now. Building owners and A&E firms should consult a tax professional about remaining eligibility for grandfathered projects.
Program details change - verify current rules on the official program page before applying.