As 179D Phases Out, A&E Firms Should Reassess Their Federal Incentive Strategy 

For more than a decade, the 179D Energy Efficient Commercial Buildings Deduction has been a meaningful federal incentive for architecture and engineering firms working on tax-exempt projects such as K-12 schools, municipal buildings, state and city facilities, higher education campuses, healthcare systems, and other nonprofit-owned properties. But the 179D opportunity phases out under current rules, and the window is narrowing.

Under current rules, projects must have substantial construction begin before June 30 of this year to qualify. After that date, new projects will no longer be eligible under the existing framework. 

There is still time to act. 

Projects completed within the past three tax years may still qualify if 179D was not previously claimed. Projects that begin substantial construction before the deadline can also generate deductions. For firms that have not recently reviewed their portfolio, this is a critical window to determine whether value remains on the table. 

However, 179D has largely been a project-based incentive. As it phases out, leadership should evaluate longer-term federal strategies that apply across the broader firm. 

One of the most relevant is the Research and Development Tax Credit. 

The R&D Credit in the Current Legislative Environment 

Recent changes under the One Big Beautiful Bill have reshaped the landscape around capitalization of research expenses. With the repeal of mandatory amortization and the restoration of immediate expensing for domestic research costs, the R&D Credit has regained its full economic impact. 

For architecture and engineering firms, this is particularly significant. 

Many firms have historically overlooked the R&D Credit because they did not view their work as traditional research. In practice, firms that routinely engage in technical design and performance-driven problem solving typically generate qualifying activity. 

The credit applies annually and is claimed directly by the firm. A portion of qualified wages paid to engineers, designers, and technical staff can be recaptured through the credit, creating a recurring federal benefit tied directly to the firm’s core operations. 

Unlike 179D, the R&D Credit is not dependent on public-sector allocations or construction start dates. It is embedded in the tax code as an ongoing incentive. 

As 179D phases out, the R&D Credit represents a more durable and repeatable strategy. 

A Strategic Transition 

The transition away from 179D should not be viewed simply as the loss of a deduction. It is an opportunity to reassess federal tax strategy more broadly. 

Architecture and engineering firms should consider: 

Firms that act during this transition period can secure remaining 179D value while implementing a forward-looking R&D strategy that applies on an ongoing basis. 

179D is phasing out. The R&D Credit remains permanent. 

How Firms Are Approaching This Shift 

For many firms, the challenge is not awareness. It is execution. 

A well-supported R&D Credit study requires coordination between technical teams and finance, along with clear documentation of qualifying efforts. 

As 179D phases out, firms are reassessing how federal incentives fit into their broader tax planning strategy. That typically involves reviewing any remaining 179D opportunities and determining whether the R&D Credit has been appropriately evaluated at the firm level. 

At Leyton, we work with architecture and engineering firms through this transition by helping them assess both incentives within the context of their existing operations. 

For firms navigating this shift, a structured review can provide clarity around what opportunities remain and how to approach them going forward.