While Section 179D was traditionally available only to commercial building owners, the rules have expanded to allow contractors to benefit as well. Specifically, when qualifying energy-efficient systems are designed for buildings owned by government entities or certain tax-exempt organizations, such as schools, universities, hospitals, and nonprofit organizations, the building owner may allocate the deduction to the party primarily responsible for designing the energy-efficient property. As a result, many New York construction companies that previously assumed the incentive was reserved for building owners may now be eligible to claim valuable deductions on qualifying public-sector and nonprofit projects.

Recent legislation increased the potential deduction from approximately $1.88 per square foot under the prior rules to as much as $5.94 per square foot for projects meeting prevailing wage and apprenticeship requirements. It also lowered the required energy-savings threshold from 50% to 25%. Combined with expanded eligibility for tax-exempt projects, these changes have created meaningful tax-saving opportunities for contractors.

For New York construction companies, particularly those working on public-sector, educational, healthcare, nonprofit, and mixed-use developments, Section 179D may represent one of the most valuable tax incentives available today. Understanding the latest rules can help companies identify opportunities to maximize deductions while remaining compliant with prevailing wage and apprenticeship requirements.

OBBB Creates a Sunset for the Section 179D Deduction

For many years, taxpayers viewed Section 179D as a long-term planning opportunity for energy-efficient construction and renovation projects. That changed with the enactment of the One Big Beautiful Bill Act (OBBB), which established a sunset date for the deduction. Taxpayers should also ensure that the required allocation letter is obtained and properly executed. This documentation identifies the party entitled to claim the deduction and supports the allocation of the Section 179D benefit to eligible designers.

For New York construction companies, the deadline creates a limited window to take advantage of the enhanced deduction amounts established by the IRS. Contractors involved in qualifying projects should review their project pipelines carefully to determine whether their work will qualify for the deduction. The project must satisfy an IRS-recognized start-of-construction test, including the commonly used 5% safe harbor, under which at least 5% of total project costs must generally be incurred before the applicable deadline. Accordingly, companies hoping to preserve eligibility should work closely with their tax advisors and project teams to ensure that construction activities beginning before the expiration are properly documented.

Given the sunset of the deduction, companies that have not yet evaluated projects that commenced before June 30, 2026, should consider doing so. Reviewing project documentation, construction timelines, cost records, and allocation agreements may help identify deductions that remain available despite the expiration of the incentive for newly commenced projects.

Planning Considerations for New York Construction Companies

To maximize the benefits available under Section 179D, New York contractors should consider the following:

• Determine whether the project owner is a governmental or tax-exempt entity eligible to allocate the deduction.
• Clearly document design responsibilities.
• Coordinate energy modeling and certification requirements.
• Track compliance with prevailing wage and apprenticeship requirements.
• Determine whether the project meets IRS-recognized start-of-construction guidelines.
• Obtain properly executed allocation letters from qualifying owners.

The One Big Beautiful Bill Act (OBBB) has changed the planning landscape. With Section 179D scheduled to sunset for projects that began construction after June 30, 2026, the window for taking advantage of this incentive may be closing. New York construction companies should review their projects now to determine which may qualify for this benefit.

About the Author: Phillip Ross, CPA, CGMA, is an Accounting and Audit Partner and Chair of the Construction Industry Group at Anchin, Block & Anchin, LLP. For more construction industry thought leadership and content, visit www.anchin.com.

Published: October 15, 2026.