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.

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As part of the new provisions adopted, the IRA imposed additional requirements to receive the 30% tax credit. The project must be installed under specific requirements and may require prevailing wage and apprenticeship requirements depending on the size of the project and other specific considerations.

These systems must be installed between January 1^st 2023 and December 31^st 2024. Please consult with your tax professional for additional requirements, information and to verify your qualification.

Gas Heat Pumps (GHP)/VRF

GHP’s, also sometimes referred to as VRF’s, are highly advanced mechanical units, concurrently producing mechanical power and thermal energy that provide heating and cooling. The natural gas heat pumps provided an electrical load reduction of approximately 30% and an 80% carbon emission reduction as compared to electric heat pumps powered by the grid.

Benefits

The benefit of a heat recovery system is that it allows for simultaneous heating and cooling by absorbing excess heat energy in one zone and transferring it to heat another. This helps provide comfort while operating at maximum efficiency. The heat recovery system allows for localized comfort with independent temperature control. Every occupant can enjoy a perfectly heated, cooled, and dehumidified area. VRF is a flexible system in operation and installation. Multiple configurations of indoor units are available, including wall and floor mounts.

Click here to download our flyer with more information.

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What does this mean for you?

If you make $150,000 in HVAC system upgrades you could potentially receive a $52,200 reduction in taxes rather than having to take the 39-year depreciation which only gets you a $1300 deduction. This does vary by situation but this change can give a business a large deduction in a single year. The deduction must be taken in the year that the equipment was installed.

What properties are qualified?

• The taxpayer or its predecessor didn’t use the property at any time before acquiring it.
• The taxpayer didn’t acquire the property from a related party.
• The taxpayer didn’t acquire the property from a component member of a controlled group of corporations.
• The taxpayer’s basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.
• The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.
• Also, the cost of the used property eligible for bonus depreciation doesn’t include the basis of property determined by reference to the basis of other property held at any time by the taxpayer (for example, in a like-kind exchange or involuntary conversion).

So in summary, if you acquired a new property that was in need of upgrades you can use the new tax benefits to offset the cost of the upgrades now, rather than spreading it over 39 years. Now is the time to make the investment and maximize your tax benefits. As always, be sure to consult with your tax professional for your best tax benefit.

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C-PACE

Connecticut Property Assessed Clean Energy (C-PACE) is an innovative program that is helping commercial, industrial and multi-family property owners access affordable, long-term financing for smart energy upgrades to their buildings.

C-PACE allows building owners to finance qualifying energy efficiency and clean energy improvements through placing a voluntary assessment on their property tax bill. Property owners pay for the improvements over time through this additional charge on their property tax bill and the repayment obligation transfers automatically to the next owner if the property is sold. Similar to a sewer tax assessment, capital provided under the C-PACE program is secured by a lien on the property, so low-interest capital can be raised from the private sector with no government financing required.
Read More: http://www.c-pace.com/

Commercial Solar Hot Water RFP, Incentives and Financing

The Clean Energy Finance and Investment Authority offers incentives, through designated participating contractors, to any customer of Connecticut Light & Power or The United Illuminating Company who wishes to install solar hot water systems. Click here for the incentive process guidelines.

CEFIA is providing incentives and financing to support Commercial Solar Hot Water projects through a competitive Request for Proposal (RFP) process. This is the fifth round and final round of solicitations under the current program launched in April 2012.  The “funds available” (below) reflect changes in project awards from previous rounds.
Read More About Solar Thermal Incentives

Federal Tax Relief

Extension of renewable energy incentives, the R&E tax credit and other business incentives: The agreement extends tax relief for businesses through the end of next year. This means extending the Production Tax Credit, a key incentive for renewable energy , as well as the Research & Experimentation tax credit. In addition, the agreement extends 50 percent bonus depreciation, a cost-effective temporary measure to support investment and growth. All of these would be extended through the end of 2013.

SunShot Incubator Program (Round 8)

Funding: Up to $12M Total
Close Date: 04/30/2013
Funding Organization: SunShot Initiative
Funding Number: DE-FOA-0000838

Summary:

The SunShot Incubator Program is an aggressive pay for performance program focused on helping solar startups rapidly refine and commercialize promising, proven technologies and ideas. The program seeks to accelerate the commercialization of solar energy products and solutions that dramatically lower the cost of solar power.

This round of the SunShot Incubator Program is for both hardware and non-hardware solutions that reduce the cost of systems that convert solar energy into electric potential.

The SunShot Incubator program consists of five (5) tiers (divided between hardware and non-hardware) to which applications may be submitted.

Read More on the SunShot Site

Rebates, Incentives, and Tax Relief programs are always changing. Check back to stay on top of the most updated information. Any questions? Want to know if your business energy project qualifies for rebates, incentives or tax breaks? Contact us 203-481-3531

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There is no obligation to lease, but you can call us to get more information and find out if leasing is a good option for you. Contact us to find out more information. 800-840-9101.

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The Federal Tax Incentive:
What is the tax incentive for Cogeneration or (CHP) property?
A 10% investment tax credit, applicable to only the first 15MW.

Who is eligible?
Owners of systems smaller than 50 MW may take advantage of this tax credit, and their systems must be placed into service by December 31, 2016. Only the original constructor may take the tax credit.

What are the incentives and how do they work?
The incentive is an investment tax credit, a reduction in either overall individual or overall business tax liabilities. The incentive can also be applied to the alternative minimum tax. Cogeneration owners cannot take the credit until the system is operational.

For more information about this tax credit please contact us. Check back soon we will be releasing our video all about cogeneration in the next week.

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With the Economy being what it is, Connecticut made some changes to the rebates and incentives available for green energy funding. Also the utilities made some changes as well. We do our best to stay up to date about all these so that we can make recommendations to get you the most out of the available funding. There have been a lot of changes, but I will just mention a few of the most important at the moment.
First of all, if you have any plans to do energy efficient upgrades do it soon! I know many of you might be waiting for the upswing in the economy, but as of 2012 they are reducing the funding by 35% and it is available on a first come first serve basis. Also 50% of the funding for 2011, has already been allocated. You don’t want to lose your opportunity to receive this funding because you hesitated too long. Another important aspect of receiving funding is you always want to talk to a CL & P or UI representative before beginning any part of the project. We can help you with this and have contacts at both utilities. You will not get considered for any funding if any part of the project has been started. Even if what has been started is not directly related it is possible to lose the opportunity. So don’t take any chances. Here are a few contacts at the UI and you can always contact us.

UI Contacts
. New Construction (ECB): Roy W. Haller (203) 499-2025
. Cool Choice: Michelle LeMoine (203) 499-5828
. Retrofit (EO): Roy W. Haller (203) 499-2025
. Express Lighting: Roy W. Haller (203) 499-5828
. Small Business: Dennis O’Connor (203) 499-3715
. Financing: Roy W. Haller (203) 499-2025
. O&M Services: Marissa Westbrook (203) 499-3314
. Load Response: Rick Rosa (203) 499-2632
. Residential Programs: Chris Ehlert (203) 499-2965
. Natural Gas Programs: Roy W. Haller (203) 499-2025
. UI Account Managers

If you have time and are considering this funding for the future, please write your legislators. Tell them they this funding is important for our economy and for the environment. If enough people write then maybe we can get the legislation changed and that 35% back.

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