The IRS has released the updated inflation-adjusted 2026 values for the Energy Efficient Commercial Buildings Deduction (179D), and the numbers show another meaningful increase. But with the recent legislative change under the OBBBA, the clock is now officially ticking: projects that begin construction after June 30, 2026 will no longer qualify for 179D at all.
In practical terms, the incentive is entering its final stage, and the window to qualify is rapidly closing.
Updated 2026 Inflation-adjusted 179D Values
For taxable years beginning in 2026:
Standard (non-PWA) pathway:
- Base value: $0.59/ft²
- Maximum: $1.19/ft²
- Increment: +$0.02/ft² for every percentage point above 25% energy savings
PWA (Prevailing Wage + Apprenticeship) enhanced pathway:
- Base value: $2.97/ft²
- Maximum: $5.94/ft²
- Increment: +$0.12/ft² for every percentage point above 25% savings
These increases reflect the IRS’s annual inflation adjustment to ensure the deduction remains aligned construction cost escalation and the broader economic environment.
Why These 179D Amounts Increased: Inflation Adjustment Logic
The annual adjustment is driven by several inflation-linked factors built into the Inflation Reduction Act, including:
- Annual construction cost escalation
- Labor and materials inflation
- Market-based valuation of deeper energy savings
- Federal wage provisions tied to PWA compliance
- Bureau of Labor Statistics published inflation indices
These mechanisms ensure that §179D continues to offer meaningful financial value especially on large commercial, institutional, and multifamily projects.
§179D Ends for Projects Beginning Construction After June 30, 2026
Section 70507 of the OBBBA establishes a firm cutoff: §179D is terminated for any property that begins construction after June 30, 2026.
What This Means for Eligibility:
- Projects that begin construction on or before June 30, 2026 remain fully eligible for §179D.
- Projects beginning July 1, 2026 or later will not qualify, regardless of energy performance, system design, or whether they meet all Prevailing Wage + Apprenticeship (PWA) requirements
Why This Deadline Is Critical for Your Pipeline:
- Starting construction on or before the deadline secures access to the 2026 §179D deduction values.
- Starting construction after the deadline eliminates the incentive entirely
- Missing this cut-off could result in the loss of up to $5.94 per square foot in potential tax deductions under the PWA-enhanced pathway.
For many large developments, this translates to millions in forfeited deductions.
PWA (Prevailing Wage + Apprenticeship) Compliance & Safe Harbor : What Must Be Done Now
The enhanced PWA pathway offers significantly higher deduction values, but requires proactive preparation, including:
- Contractor selection
- Wage compliance documentation
- Apprenticeship ratio tracking
- Certified payroll records
For projects seeking to qualify under the Safe Harbor, the IRS recognizes two methods to establish the official start of construction:
- Physical Work Test
- Five-Percent Safe Harbor Test
With the June 30, 2026 termination date approaching, teams must finalize these decisions before construction begins to remain eligible.
What You Should Do Right Now
To maximize the 2026 deduction and stay inside the eligibility window:
○ Confirm your project’s official “begin construction” date
This may include execution of binding construction contracts, issuance of permits, or commencement of qualifying on-site physical work.
○ Decide immediately whether to pursue the PWA-enhanced pathway
It provides the highest financial return but requires early coordination.
○ Target energy savings above 25%
Savings in the 40%–50% range help maximize your deduction toward the cap.
○ Strengthen documentation practices
Especially critical for PWA compliance, payroll records, and apprenticeship tracking.
○ Accelerate your timeline
The June 30, 2026 cutoff is now the most important scheduling milestone across your entire project pipeline.
Conclusion
Move Now If You Want to Capture the 2026 Rates!
If your project is close to design completion, or even still in early planning, now is the moment to accelerate the process.
With the increased values ($0.59 → $1.19 and $2.97 → $5.94), the financial upside has never been higher, but neither has the urgency.
To be eligible, you must act before the start-construction deadline. Waiting could mean losing access not only to the elevated deduction amounts, but to §179D entirely.
