The Section 179D Energy-Efficient Commercial Buildings Deduction has been a cornerstone of U.S. tax policy, incentivizing energy-efficient upgrades in commercial and multifamily properties. Offering deductions of up to $5.00 per square foot for energy-saving improvements, this powerful tax benefit has driven sustainable building practices while delivering significant financial relief to property owners, developers, architects, and engineers. However, the recently passed One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brings critical changes to this incentive, setting a firm expiration date for properties beginning construction after June 30, 2026. With this deadline looming, businesses and real estate professionals must act swiftly to capitalize on the 179D deduction before it disappears. This article explores the importance of the 179D deduction, the impact of its impending termination, and why now is the time to seize this opportunity.

Understanding the 179D Deduction

Introduced under the Energy Policy Act of 2005, Section 179D allows taxpayers to claim deductions for energy-efficient improvements to commercial buildings, including HVAC systems, lighting, and building envelopes. The deduction applies to both private property owners and designers of government or nonprofit buildings, such as architects and engineers. Depending on the scope of energy efficiency achieved, deductions range from $0.50 to $5.00 per square foot, with higher amounts available for projects meeting stringent energy reduction standards, such as a 50% reduction in energy use compared to a reference building.

For large commercial or multifamily projects, these savings can be substantial. A 100,000-square-foot building qualifying for the full $5.00 per square foot deduction could yield a $500,000 tax benefit, significantly reducing tax liability and improving cash flow. This incentive has not only encouraged sustainable design but also made energy-efficient upgrades financially viable, aligning environmental responsibility with economic benefits.

The One Big Beautiful Bill Act and the End of 179D

The One Big Beautiful Bill Act, a sweeping tax reform package, extends many provisions of the 2017 Tax Cuts and Jobs Act while introducing new tax policies. However, it also terminates several clean energy incentives introduced under the Inflation Reduction Act (IRA), including Section 179D. According to the legislation, the 179D deduction will no longer apply to properties where construction begins after June 30, 2026. This hard deadline marks a significant shift in U.S. tax policy, prioritizing other economic incentives over certain green energy programs.

The termination of 179D reflects a broader rollback of IRA-era clean energy credits, such as the Section 45L New Energy Efficient Home Credit, which also ends for dwelling units closed or leased after June 30, 2026. These changes signal a pivot away from long-term clean energy incentives, requiring businesses to reassess project timelines and financial strategies. For real estate developers, property owners, and design professionals, the impending sunset of 179D creates a narrow window to secure its benefits.

Why Act Now?

The June 30, 2026, deadline is less than a year away, and the complexities of qualifying for the 179D deduction demand immediate action. Here’s why businesses must prioritize leveraging this incentive now:

1. Time-Intensive Qualification Process: To claim the 179D deduction, projects must undergo energy modeling and certification by a qualified engineer or contractor to demonstrate compliance with energy efficiency standards. This process can take months, especially for large or complex projects. Starting now ensures sufficient time to complete the necessary documentation and certifications before the deadline.
2. Significant Financial Benefits: The 179D deduction offers substantial tax savings, particularly for large-scale projects. For example, a 200,000-square-foot commercial building achieving maximum energy efficiency could yield a $1 million deduction. These savings can offset the costs of energy-efficient upgrades, improve project economics, and enhance return on investment. Waiting risks missing out on these benefits entirely.
3. Project Timeline Constraints: Construction projects, especially new builds or major renovations, often span multiple years. To qualify for 179D, construction must begin before July 1, 2026. Developers planning projects in 2025 or early 2026 must initiate construction promptly to ensure eligibility, as delays could push projects beyond the cutoff date.
4. Economic and Environmental Alignment: The 179D deduction allows businesses to align financial goals with environmental responsibility. Energy-efficient upgrades reduce operational costs through lower utility bills while contributing to sustainability goals. With the deduction’s termination, future projects may face higher upfront costs for energy-efficient systems without the offsetting tax benefit.
5. Market Competitiveness: Buildings with energy-efficient features are increasingly attractive to tenants and investors, who prioritize sustainability and lower operating costs. Leveraging 179D now can enhance a property’s marketability and long-term value, positioning owners and developers ahead of competitors in a rapidly evolving real estate market.

Strategic Steps to Maximize 179D Benefits

To take full advantage of the 179D deduction before its expiration, businesses should adopt a proactive approach:

• Consult Tax and Energy Experts: Engage tax professionals and energy consultants with expertise in 179D to assess project eligibility and guide the certification process. Firms like Engineered Tax Services or CSSI specialize in navigating these incentives, ensuring compliance and maximizing deductions.
• Accelerate Project Timelines: For planned construction or renovation projects, prioritize starting construction before June 30, 2026. This may involve fast-tracking design phases, securing permits, or reallocating resources to meet the deadline.
• Evaluate Existing Properties: Owners of recently completed or ongoing projects may still qualify for 179D deductions retroactively, particularly for projects completed after 2022. A thorough review of past and current projects can uncover overlooked opportunities.
• Integrate Energy Efficiency Early: Incorporate energy-efficient systems, such as advanced HVAC, LED lighting, or high-performance building envelopes, into project designs from the outset. Early planning ensures compliance with 179D requirements and maximizes deduction eligibility.
• Monitor Legislative Updates: While the One Big Beautiful Bill Act sets a clear expiration date, tax policy can evolve. Stay informed about potential extensions or modifications to 179D through reliable sources like the Ways and Means Committee or tax advisory firms.

The Broader Implications of 179D’s Termination

The end of the 179D deduction signals a shift in federal priorities, with the One Big Beautiful Bill Act emphasizing immediate economic relief through measures like 100% bonus depreciation and expanded individual tax cuts. While these provisions benefit businesses and individuals, the loss of 179D and other clean energy incentives may slow progress toward sustainability goals. Developers and property owners will need to explore alternative funding mechanisms, such as state-level incentives or private financing, to support energy-efficient projects post-2026.

Moreover, the termination of 179D could disproportionately impact smaller firms and public-sector projects. Architects and engineers designing government or nonprofit buildings have relied on 179D to offset costs, and its absence may limit their ability to prioritize energy efficiency. Similarly, smaller developers with tighter budgets may find it challenging to invest in sustainable upgrades without federal support.

A Call to Action

The One Big Beautiful Bill Act marks a pivotal moment for businesses inwarden in the real estate and construction industries. The Section 179D deduction represents a unique opportunity to reduce tax liability while advancing energy efficiency, but its days are numbered. With the deduction set to expire for projects beginning construction after June 30, 2026, the time to act is now.

By taking strategic steps today—consulting experts, accelerating project timelines, and integrating energy-efficient designs—businesses can secure significant tax savings and contribute to a sustainable future. Waiting risks missing out on a benefit that has empowered countless projects to balance profitability with environmental responsibility. Don’t let this opportunity slip away. Contact a tax professional or energy consultant today to ensure your projects qualify for the 179D deduction before it’s gone for good.