Section 179D Energy-Efficient Commercial Building Deduction 2027
Calculate the 179D deduction (Energy Policy Act / Inflation Reduction Act) for energy-efficient commercial buildings. Base rate $1.16–2.32/sq ft, or 5× bonus with prevailing wage and apprenticeship — up to $5.81/sq ft in 2027.
| Component | Value |
|---|
What is Section 179D?
Section 179D — formally the Energy-Efficient Commercial Building Deduction — is a US tax provision created by the Energy Policy Act of 2005 and significantly expanded by the Inflation Reduction Act of 2022. It allows commercial building owners (and certain designers of government / tax-exempt buildings) to claim an accelerated tax deduction for installing energy-efficient interior lighting, HVAC, hot water systems, and building envelope improvements that exceed ASHRAE Standard 90.1 by 25% or more.
In 2027, the base deduction ranges from $0.58/sq ft (25% energy reduction) up to $1.16/sq ft (50% reduction). With prevailing wage and apprenticeship (PWA) compliance, the rates are multiplied by 5×, reaching $5.81/sq ft for a 50% energy reduction. For a 100,000 sq ft office building, that's up to $581,000 in first-year deduction — typically generating $174,000+ in federal tax savings at the 29% corporate effective rate.
How the deduction works in 2027
The 179D deduction is calculated using a sliding scale: $0.0232/sq ft for every percentage point of energy reduction above 25%, base. With PWA, $0.116/sq ft per point. Maximum deduction is reached at 50% energy reduction. To qualify, you need a third-party engineering certification using IRS-approved energy modeling software (eQUEST, EnergyPlus, IES VE). The certification must be signed by a Professional Engineer or Registered Architect licensed in the building's jurisdiction.
The deduction is taken in the year the building is placed in service. It reduces the building's basis dollar-for-dollar (so you trade an immediate deduction for slightly higher depreciation recapture at sale). For pass-through entities (LLC, partnership, S-corp), the deduction flows to owners on K-1. For C-corps, it offsets corporate income. Designers of government buildings (architects, engineers, MEP contractors) can have the deduction allocated to them since the government owner has no tax appetite.
Prevailing wage and apprenticeship — the 5× multiplier
To unlock the 5× bonus rate (up to $5.81/sq ft), all laborers and mechanics on the project must be paid prevailing wages as determined by the US Department of Labor. Additionally, qualified apprentices must perform a minimum percentage of total labor hours (12.5% in 2027, rising to 15% in later years), and the contractor must employ at least one apprentice for each four or more workers. Documentation must be retained for at least four years.
If PWA requirements are missed, owners can still cure the failure by paying back wages plus penalties to affected workers (typically 3× the wage shortfall). Most commercial GC firms now include PWA tracking in their project management software. This calculator estimates your 179D deduction under either path.
Sources: IRS Form 7205 (Energy Efficient Commercial Buildings Deduction), IRC §179D + Inflation Reduction Act 2022, NAR.realtor energy advocacy, BiggerPockets 179D guides, US DOE Building Performance Database. Last updated: May 2026.