July 15, 2025
Under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, a longstanding federal tax deduction for energy-efficient commercial construction is being phased out. Section 179D of the Internal Revenue Code – which allows building owners and certain construction-related service providers to claim a tax deduction for energy-saving improvements – will be permanently repealed. Projects that begin construction after June 30, 2026, will no longer be eligible.
Section 179D has provided a deduction of up to $5.81 per square foot for commercial buildings that incorporate qualifying energy-saving systems – such as high-efficiency HVAC, lighting, and water heating technologies. The provision was designed to encourage energy-conscious design and help offset the upfront costs of sustainable construction.
The repeal of Section 179D will affect commercial building owners, developers, and the professionals who support energy-efficient construction, including architects, engineers, and design-build contractors who, under prior law, could be allocated a portion of the deduction.
From a tax planning perspective, it’s important to note that while construction must begin before June 30, 2026, the building can be placed in service after that date and still qualify for the 179D deduction. Taxpayers should review prior-year projects to determine whether amended returns could capture missed benefits before this incentive is fully phased out.
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