Alert
IRC Section 179D Inflation Adjustments Determined for Tax Year 2026
The Inflation Reduction Act has introduced important modifications to Internal Revenue Code (IRC) Section 179D, including annual inflation adjustments to taxpayer deductions. The adjustments for tax year 2026 were established on October 9, 2025, providing significant benefits for those involved in designing and constructing energy-efficient buildings.
Who Is Affected by the IRC Section 179D Inflation Adjustment?
This change primarily impacts architects, engineers, contractors, and commercial building owners. Those engaged in designing buildings owned by tax-exempt entities and taxpaying building owners developing new or existing facilities will find these adjustments particularly beneficial.
What Changes with the IRC Section 179D Inflation Adjustment?
To facilitate planning for tax years 2023 through 2026, the Section 179D inflation adjustment amounts are listed below from Revenue Procedures 2022-38, 2023-34, 2024-40, and 2025-32. The deduction per square foot ranges shown in the chart represent the limits of the available Section 179D incentive, corresponding to the determined energy savings percentage. Whether the prevailing wage and apprenticeship (PWA) requirements are met or if the taxpayer is exempt will also have an impact on savings. The inflation adjustment increase to the Section 179D deduction will further reward energy efficiency efforts and make pursuing a Section 179D study feasible for more projects.
What are the Timing Requirements?
Projects are exempt from PWA requirements if construction began prior to January 29, 2023, so taxpayers would receive the inflation adjustment boosts shown on the left side of the chart without the need to comply with the PWA requirements.
More recently, the One Big Beautiful Bill Act (OBBBA) established a termination date for Section 179D. The incentive will no longer be available for buildings or improvements where construction begins after June 30, 2026. However, since the Section 179D deduction is claimed when the building is placed in service, many projects that begin construction before July 1, 2026, may still be claimed in a future tax year. This is particularly noteworthy for newly constructed buildings or substantial renovations where the construction timeline extends the completion date into 2027 or later.
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For further information and guidance on Section 179D and related updates from the Inflation Reduction Act, contact your firm professional.