Incentives
Commercial HVAC incentives and the 179D deduction
One Act closed the home credits and the commercial deduction with three different sentences. The difference is worth a great deal of money.
Written by HYRE HVAC Research Desk Primary-source research, data analysis and fact checking
The direct answer
26 U.S.C. § 179D, the commercial buildings deduction, was not repealed the way the home credits were. Public Law 119-21 ends it for property whose construction begins after June 30, 2026.
That is a begins-construction test, so a building started by then stays eligible however long it takes. For 2026, prevailing wage and apprenticeship raise it from $0.59–$1.19 to $2.97–$5.94 per square foot.
What exactly changed for 179D?
Public Law 119-21 § 70507 added subsection (i): “This section shall not apply with respect to property the construction of which begins after June 30, 2026.” That is a begins construction test.
It is not a placed-in-service test, and the difference is the whole story: a building whose construction began on or before June 30, 2026 remains within 26 U.S.C. § 179D however long it takes to finish, and the deduction is taken in the year the property is placed in service.
The amounts for a taxable year beginning in 2026, from the IRS. Without prevailing wage and apprenticeship: $0.59 per square foot rising to $1.19. With them: $2.97 rising to $5.94.
Meeting the labor requirements is worth roughly five times the deduction, and it is a decision that has to be made before the work starts, not at filing.
None of this reaches a home: 26 U.S.C. § 25C and 26 U.S.C. § 25D — the residential sections — were closed to property placed in service after December 31, 2025. This page is for commercial building owners, designers of government buildings, and their advisers.
Three sentences from one Act, and why only one of them is a wall
Every summary of the 2025 tax act lists these three provisions together as though they ended the same way. They did not, and the divergence decides whether a project in progress is still worth anything.
Source fact: 26 U.S.C. § 25C(i): “This section shall not apply with respect to any property placed in service after December 31, 2025.”
26 U.S.C. § 25D(h): the credit “The credit allowed under this section shall not apply with respect to any expenditures made after December 31, 2025.”
And 26 U.S.C. § 179D(i): “This section shall not apply with respect to property the construction of which begins after June 30, 2026.”
The amendment note for the third reads: “Pub. L. 119–21, title VII, § 70507 (July 4, 2025, 139 Stat. 251) added subsection (i).” All read September 6, 2026; the residential sections were read September 5, 2026.
HyreHVAC analysis: A placed-in-service test is a wall. A system installed on January 2, 2026 was outside 26 U.S.C. § 25C regardless of when it was ordered, paid for, or delivered. A begins-construction test is a gate: it closes behind you, not in front of you.
A commercial building whose construction began on June 29, 2026 is inside 26 U.S.C. § 179D, and stays inside it through a two-year or four-year build.
The deduction is taken in the year the property is placed in service, under subsection (a): “There shall be allowed as a deduction an amount equal to the cost of energy efficient commercial building property placed in service during the taxable year.”
The practical consequence, as at September 6, 2026: A new commercial project starting today is outside the deduction.
A project already under construction, or one whose construction started before the end of June, may be well inside it — and the HVAC scope is one of the three systems the section measures.
That is a live question for a large number of buildings right now, and it is why the answer to “is 179D gone” is neither yes nor no.
What “begins construction” means for 179D — a verified absence
When construction begins is the question the whole 179D provision now turns on, and the honest answer is that the IRS has not answered it for this section. We are recording that rather than borrowing an answer from elsewhere.
IRS Fact Sheet FS-2025-05 carries the row: “The deduction will not be allowed with respect to any property the construction of which begins after June 30, 2026.” It contains no question on how to determine when construction begins for 26 U.S.C. § 179D. Read September 6, 2026.
The IRS has published no § 179D-specific guidance on how to establish when construction begins.
Fact Sheet FS-2025-05, which is the IRS’s own FAQ on the Public Law 119-21 terminations, states the June 30, 2026 date and contains no question on determining the construction start.
The physical-work and 5% safe-harbour tests widely quoted in this context were issued for other Code sections — most recently Notice 2025-42 for §§ 45Y and 48E — and have not been extended to § 179D by any published document we could retrieve.
It means the position has to be established on the facts and documented at the time, and it means this is a question for a tax adviser rather than for a web page.
Contemporaneous records — contracts, schedules, invoices, engineering plans, site surveys, daily logs, equipment orders, records of physical work — are what a position of this kind is defended with, and they are far easier to assemble now than in an examination three years from now.
Assert that a particular safe harbor applies to § 179D. It may well be that the general tests are the sensible analogy, and a great deal of professional commentary assumes so. An assumption widely shared is still an assumption, and this site labels those rather than laundering them into a published position.
The 2026 amounts, and what the labor requirements are worth
Both figures rise with certified energy saving above the 25% entry threshold. The gap between the two rows is the price of the prevailing wage and apprenticeship decision.
| Taxable years beginning in 2026 | At the 25% entry threshold | Per additional percentage point | Maximum |
|---|---|---|---|
| Base deduction — 26 U.S.C. § 179D(b)(2) | $0.59 / sq ft | + $0.02 | $1.19 / sq ft |
| Increased deduction — 26 U.S.C. § 179D(b)(3), prevailing wage and apprenticeship met | $2.97 / sq ft | + $0.12 | $5.94 / sq ft |
Rev. Proc. 2025-32, § 4.25, quoted verbatim:
“For taxable years beginning in 2026, the applicable dollar value used to determine the maximum allowance of the deduction under § 179D(b)(2) is $0.59 increased (but not above $1.19) by $0.02 for each percentage point by which the total annual energy and power costs for the buildings are certified to be reduced by a percentage greater than 25 percent.”
“For taxable years beginning in 2026, the applicable dollar value used to determine the increased deduction amount for certain property under § 179D(b)(3) is $2.97 increased (but not above $5.94) by $0.12 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent.”
The revenue procedure states that its figures reflect the Code as in effect on October 9, 2025. Retrieved September 6, 2026.
HYRE calculation: On a 100,000 sq ft building certified at the maximum, the difference between the two rows is $475,000 of deduction — not of tax, since this is a deduction against taxable income rather than a credit against tax.
The cash value depends on the taxpayer’s marginal rate, and this site does not model that. The requirement itself: laborers and mechanics must be paid not less than the prevailing rates for construction, alteration or repair, and the apprenticeship requirements of section 45(b)(8) must be met.
The mechanics that decide whether a project qualifies at all
The rate is the last question, not the first. Four features of the section catch more projects than the dollar amounts ever do.
- The 25% entry threshold, against Reference Standard 90.1
- Qualifying: property certified as installed as part of a plan designed to reduce the total annual energy and power costs of the interior lighting, heating, cooling, ventilation and hot water systems, and the building envelope, by 25 percent or more in comparison to a reference building meeting the minimum requirements of Reference Standard 90.1.
- Below 25% there is no deduction at any rate. The systems measured are interior lighting; heating, cooling, ventilation and hot water; and the building envelope — so HVAC is one of three, and a project that touches only HVAC is being measured on the building’s whole modeled performance rather than on the equipment alone.
- The three-year lookback
- The deduction for a taxable year is reduced by the aggregate amount deducted in the 3 taxable years immediately preceding in respect of the same building.
- It is a running cap on a property rather than a fresh allowance each time work is done, which materially changes the arithmetic on a building that has been improved in stages.
- Allocation to the designer, for public and tax-exempt buildings
- Where where the building is owned by the United States, a State or political subdivision, an Indian tribal government, an Alaska Native Corporation or a tax-exempt organization, the deduction may be allocated to the person primarily responsible for designing the property in lieu of the owner.
- This is the provision that matters most in practice and is least known: a body with no federal tax liability cannot use a deduction, so the statute lets it pass the deduction to the architect, engineer or design-build contractor.
- On a school, a courthouse or a municipal building, the HVAC designer may be the taxpayer who benefits — and only if the allocation is arranged, which does not happen by itself.
- The retrofit alternative
- The section also provides a separate alternative deduction for a qualified retrofit plan measured on energy use intensity, certified by a licensed architect or engineer. It measures energy use intensity rather than modeled cost against a reference building, which suits an existing building with a real operating history better than the primary pathway does.
The three adjacent provisions a commercial HVAC project should be checked against
Losing 179D on a project that started too late does not mean losing everything. These are ordinary tax provisions rather than energy incentives, and they did not close.
Section 179 expensing — $2,560,000 for 2026
Quoted from the same revenue procedure:
“For taxable years beginning in 2026, under § 179(b)(1), the aggregate cost of any § 179 property that a taxpayer elects to treat as an expense cannot exceed $2,560,000 and … the $2,560,000 limitation under § 179(b)(1) is reduced (but not below zero) by the amount by which the cost of § 179 property placed in service during the 2026 taxable year exceeds $4,090,000.”
HVAC placed in service in non-residential real property has been eligible property for this election, which makes it the ordinary route for a replacement that does not reach the 25% modeled saving 26 U.S.C. § 179D demands.
HyreHVAC analysis: For a mid-sized commercial replacement this is frequently worth more than 26 U.S.C. § 179D would have been, because it reaches the whole cost rather than a rate per square foot and because it does not require certification against a reference building.
Whether an election is available on your facts is a question for your accountant.
Section 48 — the credit, for ground-source and similar energy property
A commercial geothermal project sits under a different section on a different clock.
§ 48(a)(3)(A)(vii) covers “equipment which uses the ground or ground water as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure, but only with respect to property the construction of which begins before January 1, 2035”.
That date is more than eight years further out than 26 U.S.C. § 179D’s. The base energy percentage steps down over time: 6 percent where construction begins before January 1, 2033; 5.2 percent where construction begins during 2033; 4.4 percent where construction begins during 2034. Read September 6, 2026.
What we did not read, said plainly: The increased-rate provision for meeting prevailing wage and apprenticeship requirements sits in § 48(a)(9) and was not read on this pass.
No multiplier is printed on this site, and a commercial geothermal project should be taken to a tax adviser against the section itself.
Public Law 119-21 also touched this section: Pub. L. 119-21 amended § 48(a)(2)(A)(ii), substituting “0 percent” for “2 percent”, and added § 48(a)(2)(C) restricting increases to the energy percentage for specified property.
A ground-source project is materially different tax territory from a rooftop replacement and should be taken to a tax adviser against the section itself.
Utility and state commercial programs — often the largest remaining item
Commercial and industrial efficiency programs are generally separate from residential ones, frequently larger, and frequently custom rather than prescriptive — an incentive calculated on modeled or measured savings for your specific project rather than a fixed amount per unit.
They are administered by the utility that serves the building, which is a territory question rather than a state one. How to identify the right administrator applies equally on the commercial side, and the custom-incentive route usually has to be opened before the work is designed rather than after it is done.
Method, scope, and what would make this page wrong
Method: The statutory text of 26 U.S.C. § 179D and 26 U.S.C. § 48 was read from the United States Code on September 6, 2026.
The 2026 dollar amounts were read from the IRS revenue procedure itself — Rev. Proc.
2025-32, § 4.25 — and quoted rather than restated, because the per-percentage-point increments differ from the unindexed figures in the statute and a summary that drops that is wrong.
The termination date was cross-checked against the IRS fact sheet and against § 2.11 of the same revenue procedure.
Scope, stated plainly: This is a description of statutory provisions with the dates we read them.
It is not tax advice, it does not model a taxpayer’s position, and it does not tell you whether your project began construction in time — that is a facts-and-documents question and it belongs with a qualified adviser.
Where we did not read a provision, the page says so rather than gesturing at it.
What would make this page wrong: IRS guidance on establishing a construction start for 26 U.S.C. § 179D, which would replace the recorded absence above with an answer; a new revenue procedure setting the amounts for taxable years beginning in 2027; or further legislation.
Scheduled review: December 2026, and immediately on any IRS notice or announcement touching 26 U.S.C. § 179D.
Questions
Was section 179D repealed?
How much is the 179D deduction for 2026?
How do I know whether my project “began construction” before June 30, 2026?
Can an architect or engineer claim 179D on a government building?
Does 179D apply to my house?
What if my commercial project does not meet the 25% threshold?
Is commercial geothermal treated differently?
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HYRE HVAC Research Desk
Primary-source research, data analysis and fact checking
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Data as of 26 U.S.C. §§ 179D and 48 and Rev. Proc. 2025-32 as retrieved September 6, 2026. Authorship on this site is organizational: the analysis belongs to the desk rather than to a named individual, and we do not publish credentials we do not hold.
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Sources & retrieval dates
This is not tax advice: HyreHVAC does not install, service or sell HVAC equipment, is not a tax adviser, and receives no fee from any incentive program. What is published here is the statutory text with the date we read it.
Tax law changes, and it changed here recently — confirm the current position at irs.gov and with a tax professional before you put any credit or rebate into a purchase decision, in either direction.