By Josh Howes, CEO, Walker Blue, Energy Tax Incentives
The Bottom Line
The IRS released Rev. Proc. 2026-35 on November 5, 2026, setting the inflation adjusted amounts for taxable years beginning in 2027. The headline for our clients is §179D. The maximum deduction rises to $6.13 per square foot for projects that meet prevailing wage and apprenticeship requirements, and to $1.23 per square foot for projects that do not.
Those higher values only help projects where construction of the qualifying §179D property began on or before June 30, 2026. Property whose construction began after that date does not qualify for §179D at all under the One Big Beautiful Bill Act.
The revenue procedure also updates several business and bond figures that matter to the owners, contractors, school districts and municipalities we work with. Nothing in it changes the Investment Tax Credit under §48 or §48E, elective direct pay, or credit transfers.
2027 §179D Deduction Values
The §179D deduction for taxable years beginning in 2027 ranges from $0.61 to $6.13 per square foot, up from $0.59 to $5.94 in 2026. The amount depends on how far the certified energy and power cost savings exceed 25 percent and on whether the project meets prevailing wage and apprenticeship requirements.
| Pathway | 2026 base | 2026 max | 2027 base | 2027 max | Added per point above 25% savings |
|---|---|---|---|---|---|
| Prevailing wage and apprenticeship met | $2.97 | $5.94 | $3.07 | $6.13 | $0.12 |
| Prevailing wage and apprenticeship not met | $0.59 | $1.19 | $0.61 | $1.23 | $0.02 |
Values are per square foot. A 100,000 square foot building that meets PWA and is certified at 50 percent savings would support a deduction of about $607,000 under the 2027 values, compared with $594,000 under the 2026 values, as long as the cost of the qualifying property and any prior §179D deductions on the building do not limit the claim. In 2027 the PWA maximum is reached at 51 percent savings and the non-PWA maximum at 56 percent. The higher PWA amounts also apply to property whose installation began before January 29, 2023.
Sources are Rev. Proc. 2026-35 section 3.27 for 2027 and Rev. Proc. 2025-32 for 2026.
Which Projects Can Still Use the 2027 Values
The 2027 values apply to qualifying property placed in service in a taxable year beginning in 2027, but only if construction of that property began on or before June 30, 2026. Section 70507 of the One Big Beautiful Bill Act ends §179D for any property whose construction begins after that date.
The date that counts is when construction of the qualifying property began, not when the building was built. A new HVAC system in a school built in the 1970s needs its own construction start on or before June 30, 2026.
That leaves a real group of projects that can benefit. Schools, municipal buildings, commercial properties and retrofits where construction of the qualifying property started by June 30, 2026 and finishes in 2027 or later will claim at the values for the year placed in service. For tax-exempt buildings, the designer allocation is made for the year the property is placed in service, so the same rule applies to allocations.
The baseline also changes on January 1, 2027. Under Announcement 2024-24, property that began construction after December 31, 2022 is modeled against ASHRAE 90.1-2019 when placed in service in 2027 or 2028, and against ASHRAE 90.1-2022 when placed in service after December 31, 2028. Property that began construction before January 1, 2023 can still use ASHRAE 90.1-2007. A stricter baseline makes the 25 percent savings threshold harder to reach, so the higher 2027 dollar values and the tougher 2027 baseline arrive together.
Two facts now decide most §179D claims. The first is the construction start date, so owners and designers should keep the contracts, permits and dated site records that show when construction began. The second is prevailing wage and apprenticeship compliance, which is worth roughly five times the deduction and depends on certified payroll and apprenticeship records collected during construction, not after.
Business Items for Owners, Developers and ESCOs
Several 2027 figures affect how commercial owners, solar developers, ESCOs and contractors plan purchases, report payments and choose accounting methods.
| Item | Code section | 2027 amount | Who it affects |
|---|---|---|---|
| Expensing limit for equipment | §179(b)(1) | $2,640,000 | Owners expensing building systems and equipment |
| Expensing phaseout begins | §179(b)(2) | $4,230,000 of §179 property placed in service | Owners with large equipment years |
| Gross receipts test | §448(c) | $33,000,000 average over the prior 3 years | Contractors and ESCOs using the cash method or the small contract exception from percentage of completion |
| Excess business loss limit | §461(l) | $264,000, or $528,000 on a joint return | Individual owners of pass-through entities using depreciation losses |
| Form 1099 reporting threshold | §6041(a) | $2,100 | Anyone paying contractors and vendors |
| Penalty for an incorrect information return | §6721 and §6722 | $360 per return | Anyone filing Forms 1099 |
The §179 limit matters most to owners who want to expense part of a project rather than depreciate it. Project owners claiming the ITC should coordinate any §179 election with their tax advisor, since the credit reduces depreciable basis.
The 1099 threshold now rises with inflation each year after the One Big Beautiful Bill Act raised it from $600 to $2,000 starting with 2026 payments.
Bond Items for School Districts and Municipalities
Many of our public sector clients pair elective pay with tax-exempt bond financing. The arbitrage figures below apply to those governmental bonds. The private activity bond volume cap does not apply to ordinary governmental bonds issued by school districts or municipalities and matters only where a project is financed with private activity bonds.
| Item | Code section | 2027 amount |
|---|---|---|
| State private activity bond volume cap | §146(d) | Greater of $135 per resident or $410,520,000 |
| Arbitrage rebate computation credit | §148(f) and Treas. Reg. §1.148-3(d)(4) | $2,240 per bond year |
| Reasonable broker fee for a guaranteed investment contract or defeasance escrow | Treas. Reg. §1.148-5(e)(2)(iii) | Lesser of $53,000 or 0.2 percent of the computational base, with a $5,000 floor and a $149,000 cap per issue |
These are mainly items for bond counsel and the issuer’s financial advisor. We raise them because bond financing can also affect the credit amount itself, which we review on every elective pay project.
What Did Not Change
The Investment Tax Credit is not inflation adjusted, so Rev. Proc. 2026-35 leaves it untouched. The §48 and §48E credit rates, the domestic content and energy community bonuses, elective direct pay under §6417 and credit transfers under §6418 all work the same way in 2027 as they did before this release.
Prevailing wage and apprenticeship rules are also unchanged. Wage rates still come from Department of Labor wage determinations, and the correction and penalty amounts are fixed in the statute rather than indexed.
How Walker Blue Can Help
If you have a building or retrofit where construction of the qualifying property began by June 30, 2026 and will be placed in service in 2027 or later, it may qualify at the higher 2027 §179D values. The Walker Blue team can confirm the construction start date, document prevailing wage and apprenticeship compliance, and complete the energy modeling and certification. We are glad to review any project you are weighing.
