A 22,000-square-foot medical office building in Livonia replaced two aging rooftop units last fall, along with the controls and filtration that came with them. The efficiency gain was real and easy to document. Nobody on the project team mentioned Section 179D until the new units were already running, and by then the pre-installation baseline needed to certify the deduction no longer existed. The practice missed out on roughly $19,000. Section 179D itself has since closed to any project that broke ground after June 30, 2026, which makes the construction start date, not the calendar, the only thing that decides whether a project like this one still qualifies.
Section 179D, In Plain Terms, and What the Cutoff Means Now
Section 179D of the federal tax code is the Energy Efficient Commercial Buildings Deduction, and it allows building owners to deduct the cost of qualifying energy-efficient improvements, including HVAC systems, from their federal taxes. The Internal Revenue Service (IRS) administers the deduction, and following updates under the Inflation Reduction Act of 2022, the deduction amount per square foot increases with the degree of energy savings a project achieves, with a five-fold increase available for projects that meet prevailing wage and registered apprenticeship requirements, according to the U.S. Department of Energy.
The One Big Beautiful Bill Act, signed into law in July 2025, added a termination provision to Section 179D. As the Department of Energy states plainly, the deduction no longer applies to property where construction begins after June 30, 2026. That date has already passed. A new HVAC project starting today does not qualify, and no amount of paperwork changes that. The deduction is still very much alive for one group only: projects that broke ground on or before June 30, 2026. If that describes a project you’re sitting on, the question worth asking your accountant now isn’t whether you still have time. It’s whether the documentation was built in from the start.
The deduction, while it applied, covered both new construction and retrofits of existing buildings, which was the part most owners missed. A rooftop unit replacement that meaningfully improved a building’s energy performance could qualify, provided the efficiency improvement was documented and certified by a qualified third party as required under the program. If your project began construction on or before the cutoff, that eligibility still stands regardless of when the equipment actually gets installed. Talk to your accountant about exactly how the construction start date gets established for your specific project, since that determination is what everything else hinges on now.
What Documentation the Claim Actually Requires
Claiming 179D takes engineering-grade documentation, assembled well before your accountant ever touches the return. It requires energy modeling that compares a building’s performance before and after the upgrade against a defined reference standard, certified by a qualified individual such as a licensed engineer. That baseline comparison is far easier to document with pre-installation data in hand, which is why the conversation needs to start before equipment goes in, not after.
Michigan and Utility-Level Incentives Stack on Top
Beyond the federal deduction, Michigan utilities including DTE Energy and Consumers Energy have run commercial rebate programs for high-efficiency HVAC equipment and controls upgrades. Funding levels and program rules for these rebates get revised on a rolling basis. Last year’s numbers are a bad thing to build a client proposal around, so call your utility contact for the current figures first. Unlike 179D, these utility programs are not affected by the federal termination provision and remain a separate avenue worth pursuing regardless of your 179D eligibility.
Who Actually Qualifies to Claim It
For most privately owned commercial buildings, the building owner claims the deduction directly. Tax-exempt entities, including government buildings and certain nonprofits, historically could not use the deduction themselves because they do not pay federal income tax, but the Inflation Reduction Act opened a path for these entities to allocate the deduction to the designer of the qualifying system instead, typically the engineer or contractor responsible for the energy-efficient design. That mattered for school districts and municipal buildings that previously had no reason to pursue 179D at all, and it still matters for any such project that began construction before the June 30, 2026 cutoff.
Why This Gets Missed
The paperwork requirements are the reason most owners left this money unclaimed even while the deduction was fully available. Energy modeling and certification take coordination between your contractor, your accountant, and sometimes a third-party engineer, and without that conversation up front, a completed installation can qualify in spirit but lack the documentation to actually claim it. If your project started before the cutoff, raise the eligibility question with your accountant this week. The paperwork window closes with the last invoice, whether anyone asked about it or not.
Sorting Out the Cutoff Details
The termination date in the One Big Beautiful Bill Act is a hard cutoff, not a phase-out. Construction beginning after June 30, 2026 gets no 179D deduction at all. Projects that began construction on or before that date remain eligible under the existing rules. The construction start date is the fact that decides everything else.
Does a routine rooftop unit replacement automatically qualify, assuming it falls before the cutoff? Only if it demonstrates a measurable energy performance improvement against the required reference standard, certified by a qualified individual. That documentation needs to be built into the project from day one, cutoff timing aside.
Can this be combined with utility rebates? The federal deduction and a Michigan utility rebate are separate programs with separate applications. Combining them is common practice, and claiming one doesn’t disqualify the other for projects that still qualify.
Sources
Internal Revenue Service: About Form 7205, Energy Efficient Commercial Buildings Deduction
U.S. Department of Energy: 179D Energy Efficient Commercial Buildings Tax Deduction
DTE Energy: Business Energy Efficiency Rebate Programs
Consumers Energy: HVAC Business Rebates