Section 179D: Construction Deadline, Certification and Deduction
By AE Tax Advisors · Published 2026-08-11 · Updated November 8, 2026.
Section 179D is not an open-ended deduction for every new energy project. Public Law 119-21 ended eligibility for property whose construction begins after June 30, 2026. A project that meets the construction cutoff must still satisfy the remaining qualification, certification and filing rules.
Check construction timing first
Preserve the construction-start evidence before evaluating the projected deduction. A study ordered later does not establish that the underlying project began on time. The cutoff concerns construction, not simply the date you contact a provider or prepare a tax return.
Use the current Form 7205 instructions and official guidance for the actual project and tax year. A prior article describing the deduction as permanent does not override the later statutory termination.
Establish qualifying property and energy performance
Eligible systems can involve interior lighting, HVAC and hot water, and the building envelope, subject to the statutory requirements. The building, installation and applicable energy-efficiency standard must be evaluated. Ordinary maintenance is not automatically a qualifying project.
Certification and the required technical analysis are separate from a standard cost segregation report. Confirm the qualified individual, software, inspection and documentation required for the chosen Section 179D pathway.
Apply the correct deduction calculation
For tax years beginning in 2026, the applicable base dollar values range from $0.59 to $1.19 per square foot under the statutory energy-savings formula. The increased values for qualifying property range from $2.97 to $5.94. These are not automatic deductions for every square foot of a renovated property.
The increased amount has additional requirements, including the applicable prevailing-wage and apprenticeship conditions or an available exception. Review project dates and labor records rather than assuming the larger amount applies.
Identify who can claim the amount
The taxpayer entitled to the deduction depends on ownership and the applicable allocation rules. For certain tax-exempt building owners, a qualifying designer allocation can be relevant. Performing some work on a building does not automatically make a contractor the eligible designer.
Confirm any allocation documents, prior deductions for the building and basis adjustments. Avoid two taxpayers claiming the same allowed amount.
Build the return file
- Construction-start and placed-in-service evidence.
- Building area, project scope and applicable standard.
- Certification, modeling and inspection records.
- Labor compliance or exception support.
- Ownership or designer-allocation documentation.
- Form 7205 computation, prior deduction history and basis adjustment.
Discuss the tax reporting scope after a qualified technical provider evaluates eligibility. Confirm separately who performs the certification, calculates the deduction and prepares the return.
Frequently Asked Questions
Is Section 179D available for construction beginning after June 30, 2026?
No. The statutory termination applies to property whose construction begins after that date.
Does every project qualify for $5.94 per square foot in 2026?
No. The energy-savings formula, increased-deduction conditions and other limits must be satisfied.
Is a cost segregation report the required energy certification?
Not by itself. The Section 179D technical and certification requirements must be addressed separately.
Sources and review notes
Reviewed November 8, 2026 by AE Tax Advisors. Examples are illustrative; apply the rules to the relevant tax year and records. See our editorial policy.