Section 179D After the One Big Beautiful Bill Act: What Still Qualifies in 2026

Key takeaways

• The One Big Beautiful Bill Act (Pub. L. 119-21) ends 179D for property whose construction begins after June 30, 2026.
• Projects that began construction on or before that date can still claim the deduction when placed in service later, if every other requirement is met.
• For 2026, the IRS lists maximums of $0.59 to $1.19 per sq ft, or $2.95 to $5.94 per sq ft with prevailing wage and apprenticeship.
• Designer allocation for government and tax-exempt buildings follows the same construction-start cutoff.
• A refrigerant-side treatment of existing equipment is very unlikely to qualify as 179D property; plan your business case without it.

For almost two decades, Section 179D of the Internal Revenue Code gave commercial building owners a tax deduction for installing energy-efficient lighting, HVAC, hot water and building envelope systems. As of October 2026, that deduction is on its way out. This page explains exactly what changed, which 2026 projects can still claim it, how government and nonprofit projects are affected, and whether an efficiency treatment for existing HVAC-R equipment could ever count. Tax rules turn on facts and dates, so confirm anything here with your tax adviser before you rely on it.

What Section 179D is

According to the IRS, building owners who place in service energy efficient commercial building property (EECBP) or energy efficient commercial building retrofit property (EEBRP) may claim a deduction under Section 179D. The Inflation Reduction Act of 2022 expanded it for tax years beginning in 2023. The property has to be installed as part of a plan to cut the building's total annual energy and power costs for interior lighting, heating, cooling, ventilation and hot water, or the envelope, by at least 25% compared with a reference building that meets ASHRAE Standard 90.1 (the national model energy standard for commercial buildings).

The Department of Energy describes the qualifying systems as interior lighting, HVAC, service water heating and the building envelope, and states plainly that "other energy-efficient processes or equipment loads are not eligible."

How much the deduction is worth

The deduction is the lesser of what the qualifying property cost or a per-square-foot maximum that rises with the percentage of energy savings and is indexed for inflation. The IRS Form 7205 instructions list these ranges:

The low end applies at 25% savings and the high end at 50% or more. The higher column applies only if the project paid local prevailing wages and met apprenticeship requirements.

Two ways to qualify

• Traditional (modeling) pathway. Energy modeling with DOE-qualified software compares the building with a Standard 90.1 reference building. Savings are measured as reductions in modeled energy and power cost.
• Alternative (measurement) pathway, Section 179D(f). This is for retrofits under a "qualified retrofit plan" in buildings placed in service at least five years before the plan was set up. The Congressional Research Service explains that it measures the building's energy use against its own use before the retrofit, and requires at least a 25% reduction in energy use intensity (EUI).

Both pathways need certification by a qualified professional. Neither one is a quick paperwork exercise.

What the One Big Beautiful Bill Act changed

The One Big Beautiful Bill Act, Public Law 119-21, was signed on July 4, 2025. It added a termination rule, which the IRS instructions for Form 7205 summarize this way: the deduction does not apply to "property the construction of which begins after June 30, 2026." DOE's 179D page uses the same wording. The Congressional Research Service notes that the Joint Committee on Taxation estimated the change would raise federal revenue by $134 million over fiscal years 2025 to 2034.

Three details matter most:

1. The test is when construction began, not when the property was placed in service. Major accounting firms, including Eide Bailly and MGO, read the rule to mean that a project that began construction on or before June 30, 2026 stays eligible even if it is placed in service later.
2. Nothing else about the deduction got easier. A project that clears the date still has to meet the energy savings threshold, the certification rules and, for the higher amount, the wage and apprenticeship requirements.
3. Proving the start date is your job. In our review we did not find 179D-specific IRS guidance on "beginning of construction." Practitioners generally apply the two tests used for other energy provisions: the physical work test (physical work of a significant nature has started, such as on-site or off-site fabrication under a binding contract, followed by continuous work) and the 5% safe harbor (at least 5% of total project cost paid or incurred, followed by continuous progress). Planning, design, permitting and studies generally do not count. How these tests apply to a specific 179D project is a judgment for your tax adviser.

What this means for 2026 projects

Government and tax-exempt buildings: designer allocation

Government agencies, tribal governments and tax-exempt organizations do not pay income tax, so the law lets them allocate the deduction to the designer of the qualifying property. DOE describes the designer as "the person primarily responsible for designing the eligible property placed in service." MGO notes that designers of government, nonprofit and tribal buildings can claim the deduction when they create the technical specifications for the energy-efficient property and receive an allocation letter from the owner.

The termination rule covers the property itself and does not carve out these buildings. A school district, city or federal agency project that began construction after June 30, 2026 therefore has nothing to allocate. Public owners whose projects began earlier can still sign allocation letters for designers. In practice, many public owners have used allocation as a bargaining point with design firms. That option ends with the projects already in the pipeline.

Federal facilities have other paths that do not depend on 179D, such as energy savings performance contracts. See our guide to government and public facilities and the CryogenX4 government page.

Could an HVAC-R efficiency treatment ever qualify?

A treatment like CRYOGENX4 works inside an existing system. The company describes it as a one-time nano-fluid application, installed while the system runs, that lifts insulating oil film from heat-exchanger surfaces and returns the oil to the compressor sump. It is not new equipment, and it does not change the building envelope or lighting.

Section 179D, as DOE and the IRS describe it, is built around installed energy efficient commercial building property that is part of the lighting, HVAC and hot water, or envelope systems, certified against an ASHRAE 90.1 reference building or a qualified retrofit plan. A chemical treatment of existing equipment does not fit that model well:

• It is very unlikely to be treated as the kind of installed building-system property 179D was written for.
• On its own, it would rarely meet the 25% whole-building threshold under either pathway. Cooling is only one share of a building's total energy, and results vary by equipment condition.
• For anything started after June 30, 2026, the timing rule ends the question anyway.

Our honest answer is no: do not build a business case that assumes a refrigerant-side treatment earns 179D. Whether a treatment is a repair or maintenance expense or a capital improvement for tax purposes is a separate question. That classification affects how and when you deduct the cost, and it belongs with your tax adviser.

Where the financial case comes from now

Without 179D, an efficiency project for existing HVAC-R equipment usually rests on these:

• Energy and demand savings, measured against a baseline. See how to calculate HVAC energy savings.
• Utility incentives, where available. Programs change often. See Texas utility commercial incentives, and note that custom (calculated) programs usually require measured savings.
• Budget treatment, since an operating expense can sometimes be approved faster than capital. See capex vs opex.
• Compliance value in cities and states with building performance standards.

CryogenX4 reports typical payback on the treatment of 12 to 36 months and energy savings of up to 30%. These are company figures, and results vary by equipment condition. Either way, the case should stand on measured savings, not on a tax deduction.

A short checklist for owners and CFOs

1. List every lighting, HVAC and envelope project that began construction on or before June 30, 2026, and file the evidence of the start date.
2. For each one, confirm the pathway (modeling or retrofit plan), who will certify it, and whether prevailing wage and apprenticeship records exist.
3. For public and nonprofit buildings, decide which eligible projects to allocate to designers, and in writing.
4. For new efficiency work, model the return without 179D and set out the incentive, operating budget and compliance benefits separately.
5. Confirm every tax position with your tax adviser.

Next step

If you are weighing an HVAC-R efficiency project now that 179D is closing, start with a measured baseline on a few units. Our business case template shows how to present the numbers without relying on a tax incentive, and the pilot program page explains how a small, measured trial is set up.

Frequently asked questions

Is Section 179D completely gone in 2026?

Not entirely. It no longer applies to property whose construction begins after June 30, 2026. Property that began construction on or before that date can still qualify when it is placed in service, including in a later year, if it meets all the other requirements. Confirm with your tax adviser.

What counts as beginning construction for 179D?

We did not find 179D-specific IRS guidance. Practitioners generally use the physical work test (significant physical work has started, followed by continuous work) or the 5% safe harbor (at least 5% of total cost incurred, followed by continuous progress). Design, permitting and studies generally do not count.

Can a school district or city still allocate 179D to a designer?

Only for qualifying property whose construction began on or before June 30, 2026. The termination rule has no separate exception for government or tax-exempt owners.

Does a refrigerant-side efficiency treatment qualify for 179D?

It is very unlikely. 179D is built around installed lighting, HVAC and hot water, or envelope property that meets ASHRAE 90.1-based savings thresholds. A chemical treatment of existing equipment does not fit that model, and anything started after June 30, 2026 is excluded regardless.

What are the 2026 179D deduction amounts?

The IRS lists $0.59 to $1.19 per square foot, or $2.95 to $5.94 per square foot if prevailing wage and apprenticeship requirements are met. The deduction can never exceed the cost of the qualifying property.

Sources

1. Energy efficient commercial buildings deduction — Internal Revenue Service
2. Instructions for Form 7205 — Internal Revenue Service
3. 179D Energy Efficient Commercial Buildings Tax Deduction — U.S. Department of Energy
4. The Section 179D Energy Efficient Commercial Buildings Deduction (IF12862) — Congressional Research Service (via EveryCRSReport)
5. Claiming the 179D Deduction for 2026 Projects — Eide Bailly
6. How OBBBA Impacts Your 179D Energy-Efficient Deduction — MGO
7. KBKG Tax Insight: 179D Sunset — KBKG