In the world of commercial construction and industrial energy, timing is often the difference between a project that pencils out and one that sits on the shelf. As we move through the first half of 2026, a massive financial window is beginning to close.

The Section 179D Energy Efficient Commercial Buildings Deduction, a staple of the industry for two decades, is officially scheduled to sunset on June 30, 2026, under the One Big Beautiful Bill Act (OBBBA).

For building owners, developers, and designers, the message is clear: If you haven’t started construction by mid-summer, you are leaving up to $5.94 per square foot on the table.

What’s at Stake? (The 2026 Numbers)

Thanks to the latest IRS inflation adjustments (Rev. Proc. 2025-32), the 2026 deduction rates are the highest they have ever been. Depending on your project’s labor standards and efficiency gains, the potential savings are substantial.

The Two Pathways

1. The Base Rate: For projects that achieve at least 25% energy savings but do not meet specific labor requirements, the deduction ranges from $0.59 to $1.19 per sq. ft.
2. The Bonus Rate (PWA): For projects that meet Prevailing Wage and Apprenticeship (PWA) requirements, the deduction jumps significantly to a range of $2.97 to $5.94 per sq. ft.

To calculate your maximum potential benefit, you can use the following logic:

$$\text{Total Deduction} = \text{Building Area (sq. ft.)} \times \text{Applicable Dollar Value (up to \$5.94)}$$

For a 100,000 sq. ft. warehouse or office complex, that is a swing of nearly $600,000 in immediate tax relief.

The “Beginning of Construction” Trap

The most critical detail of the 2026 sunset is the definition of “Beginning Construction.” You do not need to finish the project by June 30, but you must prove you started. The IRS typically recognizes two methods:

• The Physical Work Test: This requires “significant physical work” to have begun. In our industry, this means foundation excavation, setting anchor bolts, or permanent installation of components. Preliminary site clearing or design work does not count.
• The 5% Safe Harbor: You must have paid or incurred at least 5% of the total cost of the energy-efficient property before the deadline.

Why Proactive Planning Matters Now

Waiting until May to “talk to the engineers” will be too late. To secure this deduction, a project requires:

1. Energy Modeling: A third-party professional must model the building against the ASHRAE 90.1 standards to certify the 25%+ savings. Although the IRS does not mandate a specific modeling protocol, it is an accepted way of demonstrating the savings for the deduction. The modeling procedures come from regulation and practice. Controlled Air utilizes Carrier’s Hourly Analysis Program (HAP) to provide the precise energy modeling required for high-performance building design. This software is an industry standard for performing the 8,760-hour simulations necessary to demonstrate compliance with ASHRAE 90.1 and federal tax requirements. By leveraging this ASHRAE-approved tool, we ensure your facility’s projected energy savings are both technically accurate and professionally certified.
2. PWA Documentation: If you are aiming for the $5.94 bonus rate, your payroll and apprenticeship records must be airtight from day one.
3. Designer Allocation: For government or non-profit buildings, the tax-exempt owner can allocate this deduction to the Primary Designer (architect, engineer, or design-build contractor). This is not automatic, but an eligible entity can allocate the deduction.

The Bottom Line

Section 179D has been a cornerstone for financing HVAC retrofits, lighting upgrades, and high-performance building envelopes. After June 30, that “extra” capital disappears from the market.

Is your pipeline ready? Our team is currently prioritizing site audits and energy modeling for clients looking to lock in their 179D eligibility before the summer deadline.

Controlled Air and its affiliates are not tax, legal, or accounting professionals; this information is for educational purposes only, and you should consult with your own qualified accountant or attorney to determine the specific benefits and eligibility for your facility.