Energy Performance

Why 25% Energy Savings Matters for Section 179D

Twenty-five percent is a threshold in a defined reference-building comparison—not a general efficiency score.

Last reviewed: September 17, 2026

Section 179D | 25% Threshold | 2026 Rate Curve

For the post-2022 ordinary route, certification must establish at least a 25% reduction in covered annual energy and power costs compared with the applicable reference building. A product label, utility-savings estimate, or before-and-after bill comparison is not that denominator.

Once the threshold is met, the 2026 published formulas increase potential rates by whole percentage points before reaching separate caps.

Define the fraction

The denominator is covered reference annual cost

If the reference model produces $200,000 and the proposed model produces $140,000, the illustrative reduction is $60,000 ÷ $200,000, or 30%.

The model must use the applicable ASHRAE baseline, qualified software, and consistent comparison assumptions.

2026 potential rate checkpoints

Each pair shows base and increased potential $/SF.

25% · base$0.59/SF

Entry point

25% · increased$2.97/SF

PWA or valid exception required

50% · base$1.09/SF

Still below base cap

50% · increased$5.94/SF

Increased cap

55% · base$1.19/SF

Base cap

Rev. Proc. 2025-32 §4.25; potential rates, not approved deductions.
2026 potential rate checkpoints: accessible data
ItemValueNote
25% · base$0.59/SFEntry point
25% · increased$2.97/SFPWA or valid exception required
50% · base$1.09/SFStill below base cap
50% · increased$5.94/SFIncreased cap
55% · base$1.19/SFBase cap

Threshold

Below 25%, the ordinary route has no potential rate

A 24% result is below the entry threshold. At exactly 25%, the 2026 potential rates are $0.59 base and $2.97 increased.

Crossing the threshold does not complete the claim. Dates, systems, inspection, certification, cost, prior deductions, and path requirements remain independent gates.

Two curves

The 2026 paths rise at different increments and cap points

Base equals the lesser of $1.19 or $0.59 plus $0.02 for each percentage point above 25. Increased equals the lesser of $5.94 or $2.97 plus $0.12 per point.

The increased path caps at 50%; the base path reaches its cap at 55%. Separate rounded formulas explain why the curves are not exactly fivefold at every point.

Crossing the ordinary-route threshold

A one-point change has a defined—not general—meaning.

24%

Below ordinary threshold

25%

Potential rate begins

Certification

Support modeled result

Limits

Cost and prior claims

Threshold status alone never establishes an allowable deduction.

Apply responsibly

Area comes after the rate, then limitations follow

Supported square feet multiplied by the potential rate gives a preliminary amount. Eligible cost and prior building deductions can reduce it.

Use certified savings rather than marketing claims, attach the tax year to every rate, and have the preparer reconcile amount and filing treatment.

Illustrative 30% fraction

Keep numerator and denominator visible.

Review pointEvidence or measureWhy it matters
Reference annual cost$200,000Illustrative covered reference cost.
Proposed annual cost$140,000Illustrative covered proposed cost.
Reduction30%($200,000 − $140,000) ÷ $200,000.
Invented values explain the formula; they are not client data.

Prepare the review

Verify the percentage before discussing the rate

  • Applicable ASHRAE baseline
  • Qualified software and version
  • Covered reference annual cost
  • Covered proposed annual cost
  • Certified whole-percent savings
  • Tax year for indexed rates
  • Base or increased path support
  • Supported area
  • Eligible cost
  • Prior building deductions

Common questions

Practical answers before the review

Is 25% measured against existing utility bills?

No. The ordinary route compares modeled covered annual costs with an applicable reference building.

Does every additional point increase the amount indefinitely?

No. Both formulas have caps.

Why do the rate curves cap at different points?

The separately published base and increased formulas use different increments and maximums.

Project review

Bring the project record into one coordinated review.

NABiTax can help organize ownership, design responsibility, allocation, technical analysis, and filing support without assuming an outcome.