179D Energy Efficient Tax Deduction Expires in 2026 — How to Maximize Your Benefits Now
The U.S. Department of Energy has confirmed that under a new law (PL 119-21), an Inflation Reduction Act-era tax deduction will not apply to properties beginning construction after June 30, 2026. What does that mean for you as a building owner today?
For owners that are committed to sustainable architecture and design, it may be disappointing that this tax incentive is going away. But the good news is you can still gain tax benefits for sustainable buildings until the deadline, as long as the qualifying energy-efficient properties begin construction by June 30, 2026.
This article will discuss the details of 179D, the kind of property that qualifies for the deduction, and what you can do as an owner to take advantage of this powerful financial tool before it goes away.
Who Qualifies for 179D?
The deduction is designed to incentivize creation of energy-efficient properties and is given to the taxpaying entity who owns the eligible property placed in service.
For specific tax-exempt entities, the deduction can be given to the designer of the project. These entities are:
- The United States, a state or its political subdivision, a U.S. territory, or any agency or instrumentality of the foregoing.
- A tribe or Alaska Native corporation, as statutorily defined.
- Any organization exempt from tax under Subtitle A, Chapter 1 of the Internal Revenue Code.
What Property Qualifies for 179D?
From energy.gov:
“Energy-efficient property, referred to as ‘property,’ installed as part of the following building systems may be eligible for this deduction: interior lighting; heating, ventilating, and air conditioning (HVAC); hot water (service water heating); and/or building envelope.”
Your deduction increases based on better energy savings, and there must be a minimum of 25% energy savings for property installed to receive any deduction. The deduction also increases five-fold if certain wage and apprenticeship requirements are met.
What Buildings and Projects Qualify for 179D?
The buildings and projects that qualify for 179D are:
- New construction that includes energy-efficient property placed in service.
- Building upgrades that include energy-efficient property placed in service as part of the upgrade.
How to Maximize Your 179D Benefits Before 2026
If you’re planning a new construction or renovation project, now is the time to take advantage of the 179D deduction before it expires. Here are a few ways to make the most of this opportunity:
- Start Your Project Sooner Than Later
Because qualifying properties must begin construction by June 30, 2026, it’s crucial to start planning now. Energy modeling, design coordination, and documentation all take time. The timeline for construction projects can be very lengthy, so beginning early ensures your project stays on schedule. - Prioritize Energy Efficiency in Design
Work with architects, engineers, and sustainability consultants who understand how to design and document qualifying systems. Implementing energy-saving strategies across lighting, HVAC, and the building envelope can maximize your deduction. - Coordinate with Your Tax Professional
Your CPA or tax consultant can help you determine eligibility, ensure compliance with IRS requirements, and calculate potential deductions based on your project’s energy savings. - Consider Wage and Apprenticeship Requirements
Meeting prevailing wage and apprenticeship standards can increase your deduction five-fold. Coordinate with your general contractor and design team early to make sure these standards are met and properly documented.
Why 179D Matters for Sustainable Design
Although 179D will phase out for new construction starting after mid-2026, it remains a powerful tool for encouraging energy-efficient design today. Beyond tax savings, projects that meet or exceed these efficiency standards often experience lower operating costs and improved occupant comfort. These are long-term benefits that outlast any financial incentive.
If you’re ready to start planning your project, schedule a meeting with us to maximize your financial return and environmental impact.