The IRS has released Revenue Procedure 2025-32, which includes the 2026 inflation adjustments for a wide range of tax provisions, including the Energy Efficient Commercial Buildings Deduction (§179D).
For projects placed in service during taxable years beginning in 2026, the maximum allowable deduction under §179D has increased to reflect inflation.
Updated §179D Deduction Values
According to the inflation adjustment formula outlined on page 21 (section 4.25) of Rev. Proc. 2025-32, the applicable dollar values for 2026 are as follows:
Base Deduction (without Prevailing Wage and Apprenticeship compliance):
$0.59 per square foot, increased—but not above—$1.19 per square foot
The value increases by $0.02 for each percentage point the building’s total annual energy and power costs are reduced beyond 25%.
Increased Deduction (with Prevailing Wage and Apprenticeship compliance):
$2.97 per square foot, increased—but not above—$5.94 per square foot
The value increases by $0.12 for each percentage point the certified energy and power cost reduction exceeds 25%.
The maximum deduction is typically achieved with certified energy cost reductions of approximately 50% or more compared to the applicable ASHRAE reference standard, though the exact threshold may vary slightly year-to-year due to inflation rounding (e.g., up to about 55% for 2026 based on the formula).
| Deduction Type | 2025 Base (Min at 25% Reduction) | 2025 Max | 2025 Increment per % Point Over 25% | 2026 Base (Min at 25% Reduction) | 2026 Max | 2026 Increment per % Point Over 25% |
| Without PWA | $0.58 per sq ft | $1.16 per sq ft | $0.02 | $0.59 per sq ft | $1.19 per sq ft | $0.02 |
| With PWA | $2.90 per sq ft | $5.80 per sq ft | $0.12 | $2.97 per sq ft | $5.94 per sq ft | $0.12 |
Sources: Rev. Proc. 2024-40 (2025) and Rev. Proc. 2025-32 (2026).
These amounts apply to both new construction and qualifying retrofit projects meeting the performance requirements under ASHRAE Standard 90.1 (as determined by the applicable reference year).
What This Means for Building Owners and Designers
This inflation adjustment represents a modest but meaningful increase over 2025 values, further enhancing the financial incentive for energy efficiency upgrades in commercial and government-owned buildings.
Eligible projects that meet or exceed the 25% energy cost reduction threshold and comply with Prevailing Wage and Apprenticeship (PWA) requirements can now claim up to $5.94 per square foot.
For large public or private portfolios—such as K-12 schools, higher education, healthcare, and municipal facilities—this update can translate into hundreds of thousands of dollars in additional deductions.
Looking Ahead
With §179D currently scheduled for termination for projects beginning construction after June 30, 2026, this inflation adjustment underscores the importance of acting soon. This sunset provision stems from section 70507 of the One Big Beautiful Bill Act (OBBBA), which amends §179D as detailed in Rev. Proc. 2025-32.
Owners, architects, and engineers should confirm project timelines, model compliance early, and coordinate with a qualified §179D certifier to secure the deduction before the sunset date.
Resources
- Full text of Rev. Proc. 2025-32: irs.gov/pub/irs-drop/rp-25-32.pdf
- IRS guidance on §179D: irs.gov/credits-deductions/energy-efficient-commercial-buildings-deduction
- DOE overview of §179D: energy.gov/eere/buildings/179d-energy-efficient-commercial-buildings-tax-deduction
