IRC §179D provides a first-year federal tax deduction of up to $5.94 per square foot for qualifying energy systems in commercial buildings. Rates significantly expanded under the Inflation Reduction Act of 2022. PE-certified in-house, coast to coast.
IRC Section 179D provides a first-year federal tax deduction for energy-efficient systems installed in commercial buildings. Taken in full in the year qualifying systems are placed in service, with no depreciation schedule. Rates were significantly expanded under the Inflation Reduction Act of 2022, and the program now carries a June 30, 2026 construction start deadline under current legislation. The deduction covers three qualifying systems.
The 179D deduction ranges from $0.59 to $5.94 per square foot in 2026. The exact rate depends on two factors: the percentage of energy savings above the ASHRAE 90.1-2007 baseline, and whether the project complies with prevailing wage and apprenticeship (PWA) requirements. PWA-compliant projects qualify for a rate five times the non-PWA base.
The 2026 maximum is $5.94 per square foot, achievable by projects meeting PWA requirements at 50% or more energy savings above the ASHRAE Standard 90.1 baseline.
| Rate Category | Energy Savings Threshold | Status | Per Sq Ft |
|---|---|---|---|
|
Placed in Service Through 2022 (Partial)
Per-system partial deduction. Thresholds varied by system: 10% envelope, 15% HVAC, 25% lighting.
|
Varied by system | Legacy | Up to $0.63 |
|
Placed in Service Through 2022 (Maximum)
All three systems at or above 50% energy savings threshold. Whole-building full deduction.
|
50%+ all systems | Legacy | Up to $1.88 |
|
Placed in Service 2023+ (Non-PWA)
Per-percentage-point scaling above 25% savings. No prevailing wage requirement.
|
25% – 50%+ | Current | $0.59 – $1.19 |
|
Placed in Service 2023+ (PWA Bonus)
Prevailing wage and apprenticeship compliance required. Five times the non-PWA base rate.
|
50%+ energy savings | 2026 Max | $2.97 – $5.94 |
The deadline applies to new construction starts. Two methods establish eligibility. Most projects will find the 5% Safe Harbor the most accessible path to meeting the deadline quickly.
We identify qualifying projects and document eligibility at no cost to you.
When a qualifying building is owned by a government or tax-exempt entity, the deduction cannot be claimed by the owner. Instead, it is allocated to the design professional who designed the qualifying energy systems: architects, MEP engineers, and design-build contractors.
For-profit building owners claim the §179D deduction directly on their tax return. Pass-through entities (LLCs, S-Corps, and partnerships) flow the benefit to individual owners. No allocation required.
Investors in pass-through entities (LLCs, S-Corps, partnerships) receive their share of the §179D deduction as a pass-through item. REITs claim the deduction directly but must spread it over 5 years for earnings and profits purposes under §857.
When a building is owned by a government or tax-exempt entity, the deduction can be allocated to the contractor that designed the qualifying mechanical, lighting, or envelope systems. Not just the general contractor. The design responsibility is determinative.
See how 179D applies across property types and ownership structures at our Industries page.
| Project Type → Recipient | Claim Type | Sq Ft | Deduction at $5.94/sqft |
|---|---|---|---|
|
Public School
Engineering Firm (Allocated)
|
Allocated | 150,000 | $891,000 |
|
Nonprofit Hospital
MEP Firm (Allocated)
|
Allocated | 200,000 | $1,188,000 |
|
Private Office Building
Building Owner (Direct)
|
Owner | 120,000 | $712,800 |
|
City Library
Architecture Firm (Allocated)
|
Allocated | 65,000 | $386,100 |
|
State University
Design-Build Firm (Allocated)
|
Allocated | 300,000 | $1,782,000 |
§179D reduces the building's depreciable basis as a first-year deduction on 39-year Section 1250 property. Cost Segregation then reclassifies remaining building components into 5, 7, and 15-year recovery categories. With 100% bonus depreciation permanently restored under OBBBA, those reclassified components now qualify for a full first-year write-off. Applied together on a new build or renovation, the combined first-year tax impact can be substantially larger than either incentive alone.
Note: aecre coordinates Cost Segregation studies with qualified providers. We do not perform them in-house.
Project 179D deduction value for target buildings based on historical study data and your specific building parameters. No commitment required.
IRS-required, third-party site visit conducted by aecre's in-house Professional Engineers. We fly to your building. No subcontracting the engineering work.
Identify all qualifying buildings in your portfolio and estimate total deduction potential across the full lookback window.
Certify the 179D study methodology and results by a Professional Engineer licensed in the building's state. The IRS requirement no third-party firm can shortcut.
Collect and review project plans, schedules, costs, and contracts to confirm the study plan and establish the substantiation record.
Deliver the Building Report, PE Certification, Tax Form 7205, and all study materials required for IRS substantiation and CPA reporting.
Quantify the building's energy efficiency using ASHRAE 90.1-2007, California ACM, and NREL standards. These are the IRS-accepted methodologies for 179D certification.
Work directly with your CPA to report deductions accurately and defensibly. We provide everything they need: the study, the Form 7205, and the PE certification. They can file with confidence.
Deduction summary, energy modeling tables and graphs, and qualifying building details.
Signed and sealed by a Professional Engineer licensed in your building's state.
Qualifying building features documented per system: envelope, lighting, and HVAC.
Prepared and ready for your CPA with all required fields populated.
4 to 8 weeks for a single building. 8 to 12 weeks for portfolio engagements.
Site visits scheduled within 2 weeks of engagement.
Construction documents and as-built drawings. Cost records (architect and contractor invoices). HVAC and lighting equipment specs where available. CPA contact for filing coordination.
Engineering expertise. Energy modeling knowledge. Time for the site visit. We coordinate with the property manager, not you.
Straight answers to the questions we hear most from building owners, architects, and developers. Additional technical detail available on request.
We identify qualifying buildings, project your deduction range, and give you a clear picture of what §179D is worth for your portfolio, before you commit to anything. We work directly with your CPA so the process is seamless.
Book a Free Portfolio ReviewNo obligation. No commitment. $0 to determine eligibility.