You upgraded your HVAC last year and wrote off the cost over 39 years. Your competitor across town upgraded hers — same system, same building size — and wrote off $5.81 per square foot in a single deduction. The difference was Section 179D.

That deduction dies on June 30, 2026. Not December 31. Not “sometime next year.” June 30 — this month.

The One Big Beautiful Bill Act killed it as part of a broader rollback of clean energy tax incentives. If you own the commercial space where you operate — a salon, restaurant, studio, boutique, clinic — this is the most valuable tax benefit you are about to lose.

But you do not have to finish a project by June 30. You just have to begin one.

What Section 179D Actually Is (and Why It Matters More Than You Think)

Section 179D is a federal tax deduction for energy-efficient improvements to commercial buildings. It applies to three categories of upgrades:

The deduction is not a credit. It is a dollar-for-dollar reduction in taxable income. For 2026, the inflation-adjusted maximum is $5.81 per square foot.

On a 5,000-square-foot space, that is a $29,050 deduction. On 10,000 square feet, it is $58,100. This is not a rounding error. This is real money — and for many women-owned businesses operating on thin margins, it is the difference between a renovation that pencils and one that does not.

For a deeper look at how capital investments interact with deductions and depreciation, see our Section 179 and Bonus Depreciation Playbook.

Why It Is Disappearing

Calendar countdown showing June 30 deadline with fading dollar signs

The OBBBA — signed into law on July 4, 2025 — terminated Section 179D for any property whose construction begins after June 30, 2026. This was part of the bill’s broader elimination of Inflation Reduction Act clean energy incentives.

The language is specific: “shall not apply to property the construction of which begins after June 30, 2026.”

That means the controlling date is not when you finish the project. Not when you file your taxes. Not when the system gets inspected. It is when construction begins.

We break down the full OBBBA tax landscape in our 2026 Tax Playbook for Women Business Owners.

The Two Ways to “Begin Construction” Before the Deadline

The IRS recognizes two tests for establishing a construction start date. You only need to satisfy one.

1. The Physical Work Test

You must perform physical work of a significant nature on-site or on components specifically designed for the project. Qualifying activities include:

What does NOT count: Planning, permitting, financing, surveying, site clearing, demolition, or environmental studies. The IRS specifically excludes preliminary activities.

2. The 5% Cost Safe Harbor

Construction is deemed to begin when you incur at least 5% of total project costs. This is often the easier path for smaller projects. Qualifying costs include:

Example: Your total HVAC replacement will cost $60,000. You sign a binding contract and pay $3,000 (5%) in design and engineering fees before June 30. Construction has begun.

Pro tip from tax advisors: spend slightly more than 5% to create a buffer against cost overruns that could push your percentage below the threshold.

The Continuity Requirement

Both tests come with a catch. Once construction begins, you must maintain continuous progress toward completion. You cannot pay 5% in June and then shelve the project for two years.

However, there is a safe harbor: if the project is placed in service within four calendar years of the construction start date, the continuity requirement is automatically satisfied.

Who Qualifies

Section 179D is available to:

If you own your commercial space, you are the primary beneficiary. If you lease, talk to your landlord — the deduction belongs to whoever pays for the improvements, but allocation rules apply.

This is another reason owning your commercial real estate changes the financial calculus for women business owners. Tenants who renovate spaces they do not own often lose this benefit entirely.

The Energy Savings Threshold You Must Hit

The improvements must achieve at least a 25% reduction in energy consumption compared to the ASHRAE 90.1-2007 reference standard. That sounds technical, but in practice:

You will need an energy model prepared by a qualified professional using IRS-approved software. Your contractor or a specialized engineering firm can handle this. The certification must be completed by a licensed professional engineer or contractor.

Prevailing Wage and Apprenticeship: The Full-Rate vs. Reduced-Rate Split

Energy efficient commercial building with modern LED lighting interior

The maximum $5.81/sq ft deduction requires meeting prevailing wage and apprenticeship requirements:

If you do not meet these requirements, the deduction drops to a base rate of approximately $0.58 per square foot — a fraction of the full benefit.

For smaller projects, meeting prevailing wage requirements may not be difficult. Many licensed HVAC and electrical contractors already pay at or above prevailing wage. Ask your contractor directly before assuming you do not qualify.

Your 23-Day Action Plan

If you have been considering any energy-efficient upgrade to commercial space you own, here is what to do before June 30:

Week 1 (Now through June 14):

  1. Get a contractor estimate for the improvement you have been considering — HVAC, lighting, insulation, windows, roofing
  2. Ask the contractor whether the project would meet ASHRAE 90.1-2007 25% savings threshold
  3. Ask whether their labor rates meet prevailing wage standards
  4. Get a written total project cost estimate

Week 2 (June 14–21):

  1. Choose between the physical work test and the 5% cost safe harbor (for most readers, the 5% test will be faster)
  2. Sign a binding written contract with your contractor
  3. Make a payment of at least 5% of total project cost — and document it meticulously

Week 3 (June 21–30):

  1. If using the physical work test, ensure significant on-site work begins before June 30
  2. If using the 5% test, confirm your payment has cleared and you have receipts, contracts, and a cost summary
  3. Engage a tax advisor or CPA to confirm your approach and plan the deduction filing

Documentation you need to keep:

What Happens After June 30

The deduction does not have to be claimed by June 30. It has to be started by June 30. Once you have established a valid construction start date:

If you are also navigating lease vulnerabilities as a commercial tenant, see our guide on zero commercial rent protection — another reason owning beats leasing for women business owners.

The Math That Should Make This Obvious

A 5,000-square-foot salon owner replacing a 20-year-old HVAC system:

Without 179D With 179D
Project cost $75,000 $75,000
Tax deduction (year placed in service) ~$1,923/yr (39-yr depreciation) $29,050 (immediate)
Tax savings at 24% bracket $462/yr $6,972 (immediate)
Tax savings at 32% bracket $615/yr $9,296 (immediate)

Without 179D, you depreciate the improvement over 39 years. With 179D, you take the full deduction in the year the system goes live. That is not a marginal difference — it is a fundamentally different financial outcome.

And the cost to “begin construction” under the 5% safe harbor? On a $75,000 project, that is $3,750 in contractor or design fees. You likely would have spent that money anyway.

FAQ

Can I still claim Section 179D if my project is not finished by June 30, 2026?

Yes. The June 30 deadline applies to beginning construction, not completing it. As long as you meet either the physical work test or the 5% cost safe harbor by June 30, you can finish the project later and claim the deduction when the improvements are placed in service. The continuity safe harbor gives you up to four calendar years from the construction start date.

Does Section 179D apply to leased space, or only buildings I own?

The deduction is primarily for building owners. If you are a tenant who pays for qualifying improvements, the deduction may still be available, but allocation rules apply and your landlord’s cooperation may be required. If you own your building, you claim it directly — this is one of the many financial advantages of commercial real estate ownership.

What if I cannot meet the prevailing wage and apprenticeship requirements?

You can still claim the deduction, but at a significantly reduced rate — roughly $0.58 per square foot instead of $5.81. Before assuming you do not qualify, ask your contractor whether their pay rates meet local prevailing wage standards. Many licensed commercial contractors already do.

Is the 5% cost test really as simple as paying 5% of the project cost?

Conceptually, yes. You must incur at least 5% of total estimated project costs before June 30, 2026, under a binding written contract. The costs must be capitalizable — materials, labor, design fees, and engineering all count. Document everything. Tax advisors recommend spending slightly above 5% to protect against cost overruns that could shift the percentage below the threshold.

Section 179D is a complex tax provision with specific compliance requirements. This article provides general guidance only. Consult a qualified tax professional before making tax-related decisions.

Additional resources:

Related: The ERC Time Bomb · The 1099 Invisibility Problem · The Disparate Impact Countdown

HerCapital covers the capital strategies, funding systems, and financial infrastructure that determine which women-owned businesses grow and which get stuck. No fluff, no cheerleading — just the information the funding industry isn’t volunteering.