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Executive Summary: The Facts What's Happening: Section 179D expires for projects beginning construction after June 30, 2026, thanks to the "One Big Beautiful Bill Act" signed in July 2025.
Why It Matters: Up to $5.81 per square foot in tax deductions for energy-efficient commercial building improvements. For a typical 100,000 sq ft building, that's potentially $581,000 in deductions.
What To Do: Act now on current and planned projects. Construction must BEGIN (not complete) by June 30, 2026. Review your entire portfolio immediately.
What Is Section 179D?
Section 179D is the Energy Efficient Commercial Buildings Tax Deduction —a 20-year-old federal incentive that rewards property owners for installing energy-efficient systems. Here's what you need to know:
Qualifying Systems: HVAC, interior lighting, and building envelope improvements (windows, insulation, roofing)
Property Types: Available for new construction AND retrofits of existing buildings
Deduction Range: $0.58 to $5.81 per square foot, depending on energy savings achievedFrequency: Can be claimed every three years on the same building if additional qualifying upgrades are made
The Multiplier: Meeting prevailing wage requirements increases your deduction by 5x
Which Properties Qualify?
Energy Requirements: Properties must achieve 25-50% energy reduction compared to ASHRAE efficiency standards. Both new construction and retrofits qualify, provided they meet these thresholds.
The Prevailing Wage Multiplier
This is where the real money is made. The deduction amounts depend heavily on whether you meet federal prevailing wage and apprenticeship requirements:
Without Prevailing Wage Compliance: • Minimum: $0.50/sq ft (25% energy reduction) • Maximum: $1.00/sq ft (50% energy reduction)
With Prevailing Wage Compliance: • Minimum: $2.50/sq ft (25% energy reduction) • Maximum: $5.00/sq ft (50% energy reduction)
The Bottom Line: Meeting prevailing wage requirements increases your deduction by 500%. You must document labor hours, wage rates, and ensure contractors and subcontractors comply. The paperwork is worth it.
Critical Deadlines & Action Steps
"Beginning Construction" is defined two ways by the IRS:
Physical Work Test: Significant on-site construction work has started
5% Safe Harbor Test: At least 5% of total project costs have been incurred
Immediate Action Steps
Portfolio Inventory: List every commercial property you own or are developing
Timeline Review: Assess which projects can realistically break ground by June 2026
Retrofit Analysis: Identify existing buildings that could benefit from energy upgrades
Engineer Engagement: Hire qualified professionals for energy modeling and certification
Contractor Vetting: Ensure your contractors understand and will comply with prevailing wage requirements
Documentation Setup: Establish systems to track and document all compliance requirements
Don't Forget Past Projects
You might be sitting on money you didn't know you had:
Retroactive Claims: Projects placed in service from 2021-2023 may still be eligible
Amendment Deadline: 2021 tax returns are approaching final amendment deadlines
Form 3115: Use IRS Form 3115 to file retroactive claims for qualifying past improvements
Existing Buildings: Past retrofits or upgrades you may have overlooked
The Math That Matters
Here's what these deductions look like in real dollars:
Example 1: 100,000 sq ft warehouse • 40% energy reduction achieved • Prevailing wage requirements met • Deduction: $400,000 ($4.00/sq ft) • Tax savings: $148,000 (at 37% rate)
Why This Matters Now
June 30, 2026 sounds far away. It's not. Here's why time is working against you:
Supply Chain Delays: Materials and equipment lead times are unpredictable
Permitting Timelines: Municipal approvals can take 6-12 months
Design Phase: Energy modeling and engineering work requires months
Contractor Scheduling: Good contractors book up quickly
No Guarantee: Once gone, there's no assurance this deduction returns
The Bottom Line
This is real money leaving the table if you wait. Every commercial project in your pipeline—whether planned, under design, or ready to break ground —needs immediate evaluation for Section 179D eligibility.
Key Takeaways:
Projects must BEGIN construction by June 30, 2026
Retrofits of existing buildings are often quick wins
Prevailing wage compliance increases deductions by 500%
Past projects may still qualify for retroactive claims
Professional guidance is essential for compliance and documentation
NEXT STEPS:
Schedule a portfolio review to identify which of your properties qualify for Section 179D deductions. Time is not on your side with this deadline. Every month you delay is money potentially lost forever.
Work with qualified tax advisors and engineers who understand both the technical energy requirements and the compliance documentation needed. The deduction amounts are substantial enough to justify the professional fees, but only if you act now.
Brett Vogeler has been investing in commercial real estate for over two decades and helps investors navigate complex real estate purchases.
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