Energy Incentives
Three federal opportunities. One clear comparison.
Section 179D, cost segregation, and the clean-energy investment credit with direct pay work in different ways and reward different project timelines. Start with your role, then open the incentive you want to understand.
Last reviewed: September 8, 2026
Who are you?
Selecting a role highlights the incentives most often relevant to that audience. All three remain available below.
Overview
Section 179D is a federal tax deduction — not a credit — for energy-efficient commercial building property. It is claimed in the year the property is placed in service, and the amount is calculated per square foot based on modeled energy savings against a reference standard.
Two paths exist. The building owner claims the deduction for its own property. Alternatively, for a building owned by a government or tax-exempt entity, that owner may allocate the deduction in writing to the person primarily responsible for designing the qualifying systems.
Who may qualify
Owner claim
- Owners of commercial buildings and multifamily buildings of four or more stories
- The owner must have federal tax liability the deduction can offset
- Applies to new construction, additions, and qualifying retrofits
Designer allocation
- Architects, engineers, and design-build entities responsible for the design
- Building owned by a government body or, for property placed in service after 2022, a tax-exempt entity or tribal government
- Requires a signed allocation letter from the building owner
A tax-exempt or governmental owner cannot use the 179D deduction itself. Its role is to allocate the deduction to a qualifying designer.
Relevant systems
Three system groups drive the energy model. Improvements are evaluated together as a whole-building result, not system by system in isolation.
Interior lighting
Fixture efficiency and how the system is controlled.
- —LED fixture replacement
- —Daylighting and occupancy controls
- —Lighting power density reductions
HVAC & hot water
Heating, cooling, ventilation, and service water heating.
- —High-efficiency chillers, boilers, RTUs
- —Heat pumps and energy recovery
- —Controls, VFDs, and hot water systems
Building envelope
The thermal boundary between conditioned space and outside.
- —Roof and wall insulation
- —High-performance glazing and doors
- —Air sealing and infiltration control
Physical improvements vs. supporting services
Only the qualifying physical property — the installed lighting, HVAC/hot water, and envelope work — is the subject of the deduction.
Energy modeling, third-party certification by a qualified professional, site inspection, and the supporting documentation package are required services that substantiate the claim. They are professional fees, not deductible building property under 179D, and their cost is treated separately.
Benefits & project timing
For 179D, two different dates matter: the placed-in-service date sets which rate schedule applies, and the construction-start date now determines whether the deduction is available at all.
| Applicable project dates | Potential deduction, credit, or depreciation treatment | Key conditions | What this means for your project |
|---|---|---|---|
| Placed in service 2006–2022 (pre-Inflation Reduction Act rules) | Deduction up to roughly $1.80/sq ft, inflation-adjusted in later years, under the legacy partial/full qualification rules. | 50% energy cost reduction vs. the applicable ASHRAE 90.1 reference standard; partial deductions available for individual systems. | Older completed buildings may still be reviewed — a missed deduction is generally corrected through an accounting-method change rather than an amended return. |
| Placed in service on or after Jan 1, 2023 | Base: $0.50–$1.00/sq ft (2022 dollars). Bonus with prevailing wage & apprenticeship: $2.50–$5.00/sq ft (2022 dollars), scaling with energy savings. Amounts are inflation-adjusted each year — for 2025 the ranges are roughly $0.58–$1.16 and $2.90–$5.81. | Minimum 25% energy savings; the amount rises with each additional percentage point of savings. The bonus rate requires prevailing wage and apprenticeship requirements to be met. | Meeting labor requirements is worth roughly five times the base deduction. This has to be planned before construction, not documented afterwards. |
| Construction begins on or before June 30, 2026 | Deduction remains available under the current rules, even if the building is completed and placed in service in a later year. | Beginning of construction must be established and documented under the applicable IRS standard. | Projects already under way keep the benefit. Documenting your construction start date now protects the claim. |
| Construction begins after June 30, 2026 | No 179D deduction. The provision was terminated for such property by the One Big Beautiful Bill Act (P.L. 119-21). | Termination is keyed to the construction-start date, not the placed-in-service date. | If a 179D-eligible project is on your board, the start date is the deadline that matters. Planned work after that date should be evaluated for other incentives instead. |
Placed in service 2006–2022 (pre-Inflation Reduction Act rules)
- Potential treatment
- Deduction up to roughly $1.80/sq ft, inflation-adjusted in later years, under the legacy partial/full qualification rules.
- Key conditions
- 50% energy cost reduction vs. the applicable ASHRAE 90.1 reference standard; partial deductions available for individual systems.
- What this means
- Older completed buildings may still be reviewed — a missed deduction is generally corrected through an accounting-method change rather than an amended return.
Placed in service on or after Jan 1, 2023
- Potential treatment
- Base: $0.50–$1.00/sq ft (2022 dollars). Bonus with prevailing wage & apprenticeship: $2.50–$5.00/sq ft (2022 dollars), scaling with energy savings. Amounts are inflation-adjusted each year — for 2025 the ranges are roughly $0.58–$1.16 and $2.90–$5.81.
- Key conditions
- Minimum 25% energy savings; the amount rises with each additional percentage point of savings. The bonus rate requires prevailing wage and apprenticeship requirements to be met.
- What this means
- Meeting labor requirements is worth roughly five times the base deduction. This has to be planned before construction, not documented afterwards.
Construction begins on or before June 30, 2026
- Potential treatment
- Deduction remains available under the current rules, even if the building is completed and placed in service in a later year.
- Key conditions
- Beginning of construction must be established and documented under the applicable IRS standard.
- What this means
- Projects already under way keep the benefit. Documenting your construction start date now protects the claim.
Construction begins after June 30, 2026
- Potential treatment
- No 179D deduction. The provision was terminated for such property by the One Big Beautiful Bill Act (P.L. 119-21).
- Key conditions
- Termination is keyed to the construction-start date, not the placed-in-service date.
- What this means
- If a 179D-eligible project is on your board, the start date is the deadline that matters. Planned work after that date should be evaluated for other incentives instead.
Inflation adjustment and the 2026 figures
The statutory $0.50/$1.00 and $2.50/$5.00 amounts are stated in 2022 dollars and adjusted annually by the IRS. The 2025 figures above are the published adjusted values.
Flagged for review: 2026 inflation-adjusted amounts should be confirmed against the current IRS revenue procedure before being relied on for a specific project.
SourcesIRS — Energy efficient commercial buildings deductionDOE — 179D overview
Free tool
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This page is general information, not tax advice. Eligibility, amounts, and deadlines depend on the specific property, entity, project dates, and applicable federal law and IRS guidance, which change over time. A tax deduction, accelerated depreciation, and a tax credit or direct payment are distinct forms of benefit. Confirm treatment with your tax advisor before filing.