Section 179D energy efficient commercial buildings deduction
A tax deduction for qualifying energy-saving lighting, heating, cooling and building-envelope installations in US commercial buildings, claimed by owners or allocated designers.
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Section 179D supports qualifying interior lighting; heating, cooling, ventilation and hot-water systems; and the building envelope, which encloses the building. The standard certified-building route described here uses a comparison with a reference building to establish energy savings.
For tax years beginning in 2026, the base deduction ceiling rises from $0.59 per square foot at 25% savings to $1.19 at 55% savings. The actual standard deduction is limited to the smaller of the eligible installed-system cost and the applicable floor-area ceiling. Earlier deductions for the same building reduce the available ceiling: the preceding three tax years for owners, or four for allocated deductions.
The enhanced ceiling can reach $5.94 per square foot in 2026. This requires prevailing wages and applicable apprenticeship requirements, unless installation began before January 29, 2023. Prevailing wages mean paying installation laborers and mechanics at least the local rates determined by the Department of Labor, including those working for contractors and subcontractors. Qualified apprentices must perform the required share of installation labor hours. A deduction reduces taxable income, so these figures are deduction limits rather than amounts paid to the claimant.
Eligibility
- The building must be in the United States and within the scope of the applicable ASHRAE/IES Reference Standard 90.1. This standard supplies the minimum-performance reference building used for the energy-cost comparison. The installed property must qualify for depreciation or amortization, meaning its cost can be deducted over time under the tax rules.
- Under this standard route, certification must show a plan to reduce annual energy and power costs for the building’s lighting, heating, cooling, ventilation and hot-water systems by at least 25% compared with that reference building. A reduction against your previous bills is not this test.
- Commercial building owners can claim. A designer can claim a written allocation from a government entity, Indian tribal government, Alaska Native corporation or organization exempt from income tax under chapter 1. The designer must be primarily responsible for designing the energy-efficient property and create the installation’s technical specifications; merely installing, repairing or maintaining equipment does not qualify.
- Eligible costs are the qualifying building systems, rather than the whole building or general renovation. Ovens, fryers, manufacturing equipment, elevators, escalators and exterior lighting are excluded.
- Property whose construction begins after June 30, 2026 cannot qualify. Earlier construction must still meet the deduction’s other requirements; June 30 is not the tax-return filing deadline.
How to apply
- Status
- Nabór ciągły
- Warunki naboru
- Only qualifying property whose construction began on or before June 30, 2026. Claims follow the applicable tax-year and Form 7205 requirements.[^c5][^c16]
Arrange certification by an unrelated engineer or contractor licensed in the building’s jurisdiction who confirms their qualifications in writing. Certification uses qualified energy-modeling software and includes field inspection after the property is placed in service, meaning installed and ready for its intended use. Keep the certification in your tax records.
Claim through the IRS using Form 7205 for qualifying property placed in service during the tax year. Designers need the exempt building owner’s written allocation. The building owner must reduce the property’s tax basis—the amount used for future tax calculations—by the deduction, including a deduction allocated to a designer.
If you claim the enhanced deduction by meeting wage and apprenticeship requirements, attach a compliance statement to your timely filed income-tax return, including extensions, and retain the supporting labor records.