---
title: "2026 Section 179D Update: New Inflation Adjusted Benefit Rates"
description: "New 2026 IRS §179D rates released: Learn how to qualify using PWA or Safe Harbor strategies before the construction deadline. Maximize your deductions now."
image: https://www.concordlp.com/hubfs/2026%20Section%20179D%20Update%20New%20Inflation%20Adjusted%20Benefit%20Rates%20Banner.jpeg
---

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[179D](https://www.concordlp.com/news/tag/179d) [Safe Harbor](https://www.concordlp.com/news/tag/safe-harbor) [PWA](https://www.concordlp.com/news/tag/pwa)

Published:

 Oct 16, 2025 

 |

Updated:

 Oct 16, 2025 

 |

 6 min

# 2026 Section 179D Update: New Inflation Adjusted Benefit Rates

![Dennis J. Stilger, Jr.](https://www.concordlp.com/hubfs/Dennis%20Photo.jpeg)

Posted By

[ Dennis J. Stilger, Jr. ](https://www.concordlp.com/news/author/dennis-j-stilger-jr)

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Projects placed in service in 2026 that qualify for the [Section 179D](https://www.concordlp.com/179d-tax-deduction) deduction will be eligible for new, inflation-adjusted per-square-foot deduction rates under [Revenue Procedure 2025-32](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf) released October 14, 2025. For designers, architects, and engineers planning to claim these deductions, here’s what has changed and how to adapt.

The applicable per square foot deduction values rise to a **base range of $0.59 to $1.19 per square foot** and **$2.97 to $5.94 per square foot **for projects that qualify for the “bonus rate” deduction available for projects that meet PWA (Prevailing Wage & Apprenticeship) requirements.

## **Understanding PWA Requirements**

PWA compliance is critical for unlocking the enhanced 5× “bonus” rate deduction made available to taxpayers under the Inflation Reduction Act of 2022. Taxpayers have two approaches available to them to meet PWA requirements and qualify for “bonus” deductions available under 179D. Both are explained in further detail below.

Meet PWA Requirements through Performance:

Taxpayers interested in qualifying for the “bonus” rate 179D deduction have the option to meet PWA requirements by ensuring that all laborers and mechanics involved with the project are paid locally prevailing wages, apprentices are used to complete required numbers of labor hours, and they retain appropriate records to support compliance with PWA requirements.

- **Prevailing Wage:** Laborers and mechanics must be paid at least the locally prevailing wage rates set by the Department of Labor (DOL), inclusive of fringe benefits.
- **Apprenticeship:** Projects must meet apprenticeship participation, supervision and labor-hour thresholds. Apprentices must be enrolled in applicable "qualified” apprenticeship programs.
- **Documentation:** [**Final PWA Regulations**](https://www.federalregister.gov/documents/2024/06/25/2024-13331/increased-amounts-of-credit-or-deduction-for-satisfying-certain-prevailing-wage-and-registered)** **outline recordkeeping, certification, and correction procedures. Requirements are stringent and complicated. Taxpayers are encouraged by the IRS to retain qualified third-party advisors to assist with meeting compliance requirements.

Qualify Under Safe Harbor(s):

In the event taxpayers are not able to meet Prevailing Wage and Apprenticeship labor and recordkeeping requirements for projects there are still opportunities to qualify via safe harbor provisions. Projects deemed to have “commenced construction” prior to January 29, 2023 as outlined by [**IRS Notice 2022-61**](https://www.federalregister.gov/documents/2022/11/30/2022-26108/prevailing-wage-and-apprenticeship-initial-guidance-under-section-45b6bii-and-other-substantially) qualify for “bonus” rates as well. Notice 2022-61 provides two tests to determine start of construction: the Physical Work Test and 5% Safe Harbor.

- **Physical Work Test**: Construction begins at the start of significant physical work for a continuous period, which does not include preliminary planning and preparatory activities. Work may occur on or off site to be considered significant physical work.
- **5% Safe Harbor**: Construction begins when the taxpayer pays or incurs at least 5% of the costs of the facility, and thereafter, the taxpayer makes continuous efforts to complete the project. This includes costs incurred by other parties in the process of producing property for the taxpayer under a binding contract.

Note: IRS Notice 2025-42 released August 15, 2025 has created new beginning of construction guidelines for many clean energy projects, but is silent on the treatment for 179D.

## **Comparison: 2025 vs 2026 Deduction Rates** 

| Deductions per Square Foot |  |  |  |
| --- | --- | --- | --- |
|  | PWA REGULATIONS |  |  |
| Met or Exempt (PWA) | Not Met (Base) |  |  |
| TAX YEAR | 2025 | $2.90–$5.81 + $0.12 per sq ft per % above 25% (cap 50%) | $0.58–$1.16 + $0.02 per sq ft per % above 25% (cap 50%) |
| 2026 | $2.97–$5.94 + $0.12 per sq ft per % above 25% (cap 50%) | $0.59–$1.19 + $0.02 per sq ft per % above 25% (cap 50%) |  |

**Sources:** [IRS Rev. Proc. 2024-40](https://www.irs.gov/pub/irs-drop/rp-24-40.pdf) for 2025; [IRS Rev. Proc. 2025-32](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf) for 2026 

## **How Concord Energy Strategies Can Help**

**Concord Energy Strategies** provides complete Section 179D support:

- Complimentary upfront evaluation to determine eligibility and provide a projection of available benefits
- In house energy modeling and certifications aligned with IRS and DOE standards
- End-to-End PWA compliance management services
- Preparation of all necessary documentation to facilitate allocation of benefit from tax-exempt entities
- Audit defense as a standard part of every engagement

Partnering early with a 179D specialist streamlines compliance and maximizes the benefits you are able to receive.

[Book an appointment](https://www.concordlp.com/contact) with our team for more details.

## Frequently Asked Questions

Are the 2026 Section 179D rates final? +

 Yes. The IRS published 2026 rates in [**Rev. Proc. 2025-32**](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf).

Can I claim the base deduction without meeting PWA? +

 Yes. The base path applies without PWA but enhanced “bonus” rate deductions require compliance with prevailing wage and apprenticeship requirements. 

Do I need to pay prevailing wages and have apprentices on site to qualify for “bonus rates”? +

 Not necessarily. There are multiple safe harbors available for projects to be able to qualify for the expanded “bonus rate” deductions without demonstrating compliance with prevailing wage and apprenticeship requirements for laborers and mechanics working on the project. In the event you are pursuing PWA compliance by meeting specific labor requirements for the project apprentices are required to complete prescribed amounts of labor hours for the project. 

How should I verify energy-savings calculations? +

 The IRS requires that taxpayers engaged a qualified independent third party to complete the energy modeling and certification process. Concord’s in house engineering team has completed thousands of certifications. 

Can existing buildings or retrofits qualify? +

Yes. Buildings that have received upgrades to their interior lighting, HVAC and hot water and building envelope systems that meet required energy savings thresholds are able to qualify.

How do I determine prevailing wages? +

 Prevailing wages can be determined among other ways by using the applicable Davis Bacon Wage Determination for the project based on its location, scope and other details. 

What if no qualified apprentices are available? +

 Document good-faith efforts and any denials from registered programs. 

What are the penalties for PWA non-compliance? +

Failing to meet PWA results in loss of the 5× multiplier and additional penalties — back wages plus interest under **IRC § 6621**, and up to **$5,000 per worker** ($10,000 for intentional disregard). 

Can I still qualify under Safe Harbor if my project was delayed or paused? +

Possibly. The IRS requires “continuous construction or continuous efforts” after the initial start. If a project qualifies under the 5% Safe Harbor but faces delays, you must show that substantial progress was maintained or resumed within IRS-accepted timelines. Documentation of efforts, costs, and delays is essential to defend Safe Harbor eligibility.

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Jul 16, 2025

 179D Extended! 2017 Projects Now Eligible

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