Can you still claim the 179D deduction for an energy upgrade to an apartment building?
Only for a project whose construction began on or before June 30, 2026. A 2025 law ended Section 179D for property whose construction begins after that date, but projects started by then keep it, worth $0.59 to $1.19 per square foot for 2026, or $2.97 to $5.94 when prevailing wage and apprenticeship rules are met. The building must also fall within ASHRAE Standard 90.1, which for apartments generally means four or more stories above ground.
The June 30, 2026 cutoff
Section 179D lets the owner of a building deduct part of the cost of lighting, heating and cooling, hot water or building envelope work that cuts energy use, instead of depreciating all of it over decades. The IRS page on the deduction now opens with the change: the law it calls the Working Families Tax Cuts terminated the deduction for property the construction of which begins after June 30, 2026. The statute itself says the same in subsection (i).
So the question for a 2026 project is not when the work finishes but when construction began. A boiler swap started in May 2026 and finished in November can still qualify; the same job started in August cannot. How "beginning of construction" is measured for this deduction is a technical point, so keep the dated contract, permit and first invoices and let your tax preparer decide.
Is an apartment building even eligible?
The IRS page requires the property to be installed in a building within the scope of ASHRAE and IES Standard 90.1. That standard is written for commercial buildings, and federal energy rules use it for what they call commercial and multi-family high-rise residential buildings. The Department of Energy rules in 10 CFR part 433 define a low-rise residential building as one of three stories or less above grade, and a multi-family high-rise residential building as one with three or more units designed to be four or more stories above grade.
In practice that splits apartment owners in two. A two or three story garden building is usually outside 90.1 and outside 179D. A building of four or more stories is usually inside. The licensed engineer or contractor who certifies the savings confirms which applies to your building.
The work must also be depreciable property installed as part of one of three systems: interior lighting; heating, cooling, ventilation and hot water; or the building envelope. Appliances in units and work in common areas outside those systems do not count.
Two ways to qualify
The Form 7205 instructions describe two kinds of property. Most owners of existing buildings look at the second one, a retrofit plan, because it measures savings against the building's own past energy use.
| New property (EECBP) | Retrofit plan (EEBRP) | |
|---|---|---|
| Savings test | 25% or more lower energy and power costs than a reference building meeting 90.1 | 25% or more lower energy use intensity than the building's own certified baseline |
| Building age | Any | Placed in service at least 5 years before the plan |
| Who certifies | A licensed engineer or contractor not related to you | A licensed architect or engineer |
| Year of the deduction | The year the property is placed in service | The year of the final certification, which comes more than 1 year after the work is placed in service |
The timing row matters. Under the statute, a retrofit placed in service in 2026 is measured again more than a year later, so the deduction lands on a 2027 or later return. Plan your cash and your estimated payments with that delay in mind.
Working out the amount
The deduction is the lesser of the cost of the installed property or a per square foot amount that rises with the savings. For 2026 the IRS table gives these values:
| 2026 | At 25% savings | Each extra point | Cap at 50% savings |
|---|---|---|---|
| Base deduction | $0.59 per sq ft | $0.02 | $1.19 per sq ft |
| With prevailing wage and apprenticeship | $2.97 per sq ft | $0.12 | $5.94 per sq ft |
Example a made-up five story, 48 unit building has 42,000 square feet of conditioned space. Construction of an LED lighting and boiler project began in April 2026, cost $260,000 and is certified at 38% savings, 13 points above 25%. Base rate: $0.59 plus 13 times $0.02 is $0.85, and 42,000 times $0.85 is $35,700. That is less than the $260,000 cost, so the deduction is $35,700. If every worker on the job had been paid prevailing wages and the apprenticeship rules were met, the rate would be $2.97 plus 13 times $0.12, or $4.53, and the deduction 42,000 times $4.53, or $190,260.
Two more rules from the IRS page and the form instructions: any 179D deduction claimed for the same building in the prior three years reduces this year's maximum, and the basis of the property is reduced by the deduction, so in the example the remaining $224,300 of the base case is what gets depreciated. The claim is made on Form 7205 with your return.
A quick way to decide
- If the building is three stories or fewer above ground, assume 179D does not apply and look at other ways to recover the cost, such as depreciation or the partial disposition election for what you replaced.
- If construction began after June 30, 2026, the deduction is gone for that project.
- If construction began on or before June 30, 2026 and the building is four or more stories, ask an engineer for a quote on the certification and compare it with the base-rate deduction worked out above.
- If you cannot document prevailing wages and apprentice hours for every worker, use the base rates; do not assume the higher ones.
- If the project was a retrofit, budget for the second certification more than a year after the work is placed in service.
Whether the deduction is worth the certification cost depends on your building, your tax bracket and what else you can deduct. That is a conversation for your tax preparer.
Keeping the paper trail in DoorKeeping
Each property's LLC has its own books in DoorKeeping, and bills are read and coded by AI with the invoice kept beside the entry, so the contract, the dated invoices and the engineer's certificate sit with the building they belong to. You can ask Claude or ChatGPT for every lighting and boiler invoice on one property in 2026 and hand the list to your preparer. DoorKeeping does not certify savings or give tax advice. It costs $2 per unit per month, with no other fees for owners or tenants.
Sources
- IRS, Energy efficient commercial buildings deduction, read Oct 30, 2026
- 26 U.S.C. 179D, Energy efficient commercial buildings deduction (Cornell LII), read Oct 30, 2026
- IRS, Instructions for Form 7205, read Oct 30, 2026
- 10 CFR part 433, energy standards for commercial and multi-family high-rise residential buildings (eCFR), read Oct 30, 2026
Questions
- Does 179D apply to garden style apartments?
- Usually not. The property must be in a building within the scope of ASHRAE Standard 90.1, and federal energy rules treat residential buildings of three stories or less as low-rise, outside that standard. Your certifier confirms it for your building.
- Is 179D gone after June 30, 2026?
- For new projects, yes. The deduction does not apply to property whose construction begins after June 30, 2026. Projects that began on or before that date can still claim it when they are placed in service and certified.
- What is the 179D rate for 2026?
- The base deduction is $0.59 per square foot at 25% savings, plus $0.02 per extra point, up to $1.19 at 50%. With prevailing wage and apprenticeship it is $2.97 to $5.94 per square foot.