Section 179D Energy Tax Credit Study
Big Changes Occurred to the 179D Energy Tax Deduction!
Get all the new details from the recently passed (July 4, 2025) OBBBA Act here.
What Is the 179D Energy Tax Credit?
The 179D deduction was created to encourage energy efficiency and allows for an immediate tax deduction for businesses that achieve a 50% reduction in energy costs for installing energy-efficient HVAC, lighting, and building envelope systems in new or renovated commercial buildings.
Section 179D tax deductions vanish for projects starting after June 30, 2026.
Use It or Lose It!
Buildings or renovations capitalized after January 1, 2006 or begin construction by June 30, 2026 qualify for the deduction.
Any building work started after that date will not be eligible.
What you need to know about the Energy-Efficient Commercial Building Deduction (179D) in the 2025 OBBBA Bill
This 179D deduction for green building investments has been preserved – but not for long. This provision in the OBBBA bill signed July 4th, 2025, offers up to $5.00 per square foot in tax deductions related to the building envelope (i.e. windows, roofing, insulation), HVAC and hot water systems, interior lighting not exterior, and lighting controls. OBBBA keeps the enhanced 179D incentive (as expanded under recent laws) in place through 2026, then sunsets it.
IMPACT ON YOU: This creates a closing window to claim significant tax breaks for green construction. Commercial real estate owners and developers can substantially reduce project costs by designing buildings that meet the energy efficiency criteria – potentially gaining millions in tax savings on large office, multifamily, or industrial projects. Designers and engineers also benefit: 179D allows deductions to be allocated to the project designers for government and non-profit buildings, providing a nice reward for architects and engineers who plan energy-saving systems. By 2027, this incentive will be gone, so consider completing retrofits or new construction before the deadline to lock in the tax deductions while they last.
*The key takeaway is to accelerate any energy-efficient building plans now!
How to Claim the 179D Deduction
Eligible building owners, commercial tenants, designers, and builders must work with either a Registered Professional Engineer (PE) or contractor licensed in the same jurisdiction of the building to complete the following steps:
- Have the qualified individual perform a field inspection.
- Ensure that the qualified individual uses software approved by the IRS or Department of Energy to calculate energy savings.
- Have the qualified individual certify the results.
- Only claim buildings or energy renovations that have been capitalized since January 1, 2006 and began construction by June 30, 2026.
The energy reduction improvements must meet the stringent ASHRAE 90.1 standards (not LEED) under the IRS Tax Code 179D, under the Energy Policy Act of 2005 (EPAct).
Schedule Your 179D Credit Consultation Today!
Paragon International’s engineering consultants meet all the requirements for claiming your 179D energy tax deduction, and our fixed asset tax experts will advise you on how you can maximize your tax deductions and savings at this critical juncture. The end of this tax deduction is swiftly approaching, so take advantage of this service now, so you can make the smartest decision about your business’s future!
