On July 4, 2025, Congress passed the One Big Beautiful Bill, a landmark piece of legislation with sweeping changes to many tax incentives within the energy efficiency category. One of the many effected incentives is the §179D Energy Efficient Commercial Buildings Deduction.
Once a permanent part of the tax code thanks to the Consolidated Appropriations Act in 2021,the 179D program is now sunsetting on June 30, 2026. That means only buildings that start construction prior to this date will be eligible to claim the deduction.
After the deadline, the door to significant tax savings through §179D closes for projects that have not yet started.
Why Construction Start Date Matters
Currently, the construction start date is purely about eligibility , it does not determine which energy-efficiency standard applies. Instead, it is the deciding factor for whether your project can claim the deduction at all.
- Start before June 31, 2026 → Eligible to pursue up to $5.81 per square foot in deductions.
- Start after June 31, 2026 → Not eligible, no matter how efficient the building becomes.
How the IRS Defines “Start of Construction”
The IRS recognizes construction through the use of 2 methodologies:
Method 1: Physical Work Test
- Significant physical work on site is performed such as foundation work, plumbing, vertical construction, etc… additionaly, work must be continuous
- This does not include site clearing, planning, design, permitting, etc..
Method 2: Safe Harbor
- Incur 5% of the total cost of the facility. Additionally, work must be continuous.
In both cases, proper documentation of these activities is essential to demonstrate compliance with the eligibility cutoff.
What This Means for Owners and Designers
- Building Owners: Beginning construction before June 30, 2026 locks in eligibility and ensures the opportunity to capture six- and seven-figure tax savings. Waiting too long could mean missing out entirely.
- Eligible Designers: For architects, engineers, and contractors working on government or tax-exempt projects, starting construction before the deadline is the only way to receive an allocation of the deduction.
Steps to Take Now
- Plan with the deadline in mind: Review project timelines to confirm construction begins before June 30, 2026.
- Document thoroughly: Keep dated photos, contracts, and invoices to prove when significant work started.
- Engage your advisors: Tax consultants and energy modelers can provide guidance and prepare the necessary reports and allocation letters.
Final Word
The construction start date is more than just a project milestone, it’s the gatekeeper to one of the most valuable tax deductions available today.
With the One Big Beautiful Bill sunsetting §179D on June 30, 2026, acting now ensures your project is on the right side of the deadline.
Contact our experts at Leyton to find out if your buildings qualify!
