ARTICLE | July 9, 2026

For many businesses, tax planning happens before a project starts. Section 179D is different now. The planning window has largely closed, but the documentation window may still be open.

Section 179D allows eligible commercial building owners, and in some cases designers of government or tax-exempt building projects, to claim a deduction for qualifying energy-efficient improvements. The IRS confirms the deduction applies to qualifying commercial building property and retrofit property placed in service during the tax year, with Form 7205 used to calculate and claim the benefit. Projects beginning after that date generally are not.

The important distinction: projects that began construction on or before June 30, 2026, may still be eligible. Projects beginning after that date generally are not.

This Is Broader Than “Green Buildings”

One misconception we often see is that 179D only applies to solar panels or major sustainability projects. In reality, the deduction often applies to practical building improvements completed during routine construction or renovation projects

The deduction can apply to energy-efficient improvements involving interior lighting, HVAC and hot water systems, and the building envelope, including roofs, walls, windows, doors, and insulation. The Department of Energy notes that both traditional energy modeling and certain retrofit measurement pathways may apply, generally requiring at least 25% energy savings.

That means a practical facilities project, such as an LED conversion, HVAC upgrade, or major insulation improvement, may deserve a second look.

The Potential Tax Savings Can Be Significant

For taxable years beginning in 2026, the deduction generally ranges from $0.59 to $1.19 per square foot, subject to annual IRS inflation adjustments. If prevailing wage and apprenticeship requirements are met, the range can increase to $2.97 to $5.94 per square foot.

For a 100,000-square-foot building, that could represent a deduction of up to $119,000, or as much as $594,000 with the enhanced rate, subject to eligibility, cost limits, certification, and prior deductions.

Documentation Is the Real Deadline Now

Section 179D is not claimed because a project “feels efficient.” It requires analysis, certification, and tax reporting. Form 7205 asks taxpayers to identify the owner or designer, provide certification information, and include allocation information when applicable.

For Larson Gross clients, the practical question is no longer, “Should we start a 179D project?” It is, “Did we already start one, and can we prove it?”

Now is the time to gather:

Project contracts, construction-start records, placed-in-service dates, square footage support, energy modeling or retrofit analysis, certification materials, and any allocation documents for public or tax-exempt projects.

The longer businesses wait, the harder it becomes to reconstruct the facts. Contractors move on. Project files get archived. Key assumptions behind energy models become harder to verify.

The Takeaway

If your business owns, develops, designs, or renovates commercial buildings, review projects that were underway by June 30, 2026. The deduction may still be available, but only with the right technical support and tax documentation.

Section 179D is no longer about chasing a future incentive. It is about protecting a benefit your project may have already earned.