Energy Credits for Rental Property: 45L, 179D and What Landlords Can't Use

By Tom, CPA · Updated October 27, 2026

Part of: Rental Property Taxes

TL;DR: The homeowner credits, 25C for efficiency improvements and 25D for solar and other clean energy, ended after 2025 and generally never applied to property you rent out. For landlords who build or substantially renovate, the 45L new energy efficient home credit ends for homes acquired after June 30, 2026, and the 179D deduction ends for buildings whose construction begins after June 30, 2026. Otherwise, efficiency upgrades are recovered through ordinary depreciation.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Landlords often ask whether the heat pump, new windows or solar panels on a rental come with a tax credit. Usually the answer is no, or no longer. The 2025 law (Public Law 119-21) accelerated the end of several energy incentives. This guide sorts out what applied to rentals, what is ending, and how to recover the cost of upgrades, based on IRS guidance as of October 2026.

CPA Warning Label: The 2025 law changed these incentives quickly, and the IRS continues to issue guidance. Confirm eligibility and dates against current IRS guidance before relying on any credit or deduction.

Quick answer by incentive

Sources: IRS FAQs on the Public Law 119-21 modifications to 25C, 25D, 45L and 179D.

Why 25C and 25D did not fit rentals

The 25C credit applied to improvements to a dwelling unit that you own and use as your main home, and 25D applied to property installed on a home used as a residence by the taxpayer. A rental you do not live in did not qualify. If you lived in part of a duplex and rented the other unit, the credits could apply only to the share allocable to your own residential use. With both credits ended for property placed in service or expenditures made after 2025, the question is now mostly historical, except for amending a 2025 return or a carryforward of unused 25D credit.

45L for landlords who build

The 45L credit goes to an eligible contractor, the person who constructed or substantially reconstructed a qualified home and owns it and has a basis in it during construction, and who sells or leases the home to another person for use as a residence (IRS Instructions for Form 8908). That means a landlord who builds or guts and rebuilds a rental, and then leases it, can be the eligible contractor.

• Amount: up to $5,000 per home for homes certified under the zero energy ready program, with lower amounts for Energy Star certification. Multifamily units have lower base amounts unless prevailing wage requirements are met.
• Certification: requires an eligible certifier's report under the applicable Energy Star or zero energy ready home program.
• Timing: under the 2025 law, no credit for a home acquired after June 30, 2026. For homes the contractor leases rather than sells, check the IRS FAQs on how the acquisition date is determined before relying on a date.
• Basis reduction: the credit reduces your depreciable basis in the home.

A landlord finishing a qualifying new build now needs certification and a lease start on or before June 30, 2026, which has already passed as of October 2026. Homes leased by that date may still be claimed on the 2026 return using Form 8908.

179D for larger buildings

Section 179D provides a deduction for energy efficient commercial building property: lighting, HVAC and hot water systems, or building envelope improvements that reduce energy cost against a reference standard. It covers commercial buildings and residential rental buildings of four or more stories above grade (IRS Instructions for Form 7205).

• Amount for 2026: a base of $0.59 to $1.19 per square foot depending on the energy savings, with higher amounts if prevailing wage and apprenticeship requirements are met.
• Cutoff: no deduction for property whose construction begins after June 30, 2026.
• Certification: requires energy modeling by a qualified, licensed engineer or contractor.
• Basis reduction: the deduction reduces the basis of the property.

For a typical single-family or small multifamily FIRE investor, 179D does not apply because the building is residential and under four stories.

Illustration

Illustration: A landlord substantially reconstructs a single-family home in 2026, owns it throughout construction, obtains zero energy ready home certification, and leases it to a tenant on June 15, 2026, assuming that lease date is the acquisition date under IRS guidance. Total depreciable cost of the building: $300,000, with $5,000 of 45L credit.

• 2026 credit: $5,000 on Form 8908, a general business credit subject to its own limits.
• Depreciable basis: $300,000 - $5,000 = $295,000, recovered over 27.5 years beginning in June (Publication 946).
• First-year depreciation under the mid-month convention for June: $295,000 x 1.970% = $5,812.

If the lease had started July 15, 2026, there would be no 45L credit, and the full $300,000 would be depreciated. A second landlord who simply replaced a furnace in an existing rental in 2026 gets no credit at all and depreciates the new HVAC system as part of the building over 27.5 years, unless it qualifies for a different treatment as discussed below.

Upgrades without a credit

Most efficiency spending on existing rentals is recovered through depreciation (IRS Publication 527 and Publication 946):

• Building improvements like windows, insulation, roofs and HVAC are generally 27.5-year residential rental property.
• Appliances used in the rental, such as refrigerators, ranges and washers, are 5-year property and may be eligible for bonus depreciation if acquired after January 19, 2025.
• Repairs that do not better, restore or adapt the property, like fixing a broken thermostat, are deducted currently.
• De minimis safe harbor elections may allow expensing of lower-cost items.

Utility rebates paid to a landlord for installing efficient equipment generally reduce the basis of the property or are income; utility rebates to residential customers for energy conservation are a separate rule. Check the rebate paperwork.

Common mistakes

• Claiming 25C or 25D on a rental because the software asked about home improvements. Those credits followed your residence, not your investment property.
• Forgetting the basis reduction after taking 45L or 179D, which overstates depreciation for years and creates a mismatch on sale.
• Assuming certification can come later. 45L and 179D both require third-party certification or modeling tied to specific standards, and a missing report usually means no benefit.
• Expensing a full HVAC replacement as a repair. Replacing a building system is generally an improvement capitalized and depreciated, not a current deduction.
• Ignoring state and utility programs. Many states and utilities still offer rebates or incentives for rentals that are separate from federal tax law and may have their own tax treatment.

Records to keep

Keep the certification report, the energy model for 179D, contractor invoices separated by asset, placed-in-service dates, lease start dates, rebate letters, and your depreciation schedule showing the reduced basis. If you claimed a credit on a 2025 or 2026 return, these records support it for as long as the return is open and for as long as you own the property, because they also determine your basis at sale.

Timing traps: the June 30, 2026 cliffs

The two survivors do not share a finish line test, which is exactly the kind of fine print that eats refunds. Per the IRS FAQs on Public Law 119-21, 45L is not allowed for any qualified new energy efficient home acquired after June 30, 2026. 179D is not allowed for property whose construction begins after June 30, 2026. So one rule cares about when the home is acquired, and the other cares about when the shovel first hits dirt.

Paying a deposit, signing a contract or having a hard hat on a hook does not prove anything. If you are near either date, keep dated contracts, permits, invoices and the energy certification. If those papers do not line up, assume the credit or deduction is gone. Also remember that 25C and 25D already ended for property placed in service, or expenditures made, after December 31, 2025, and paying early does not save a late install.

Solar on rentals

Solar on a rental property was never eligible for the 25D homeowner credit. Business energy credits under the newer technology-neutral investment credit rules may apply to solar placed on business or rental property, but the 2025 law imposed new start-of-construction and placed-in-service deadlines and other restrictions, and IRS guidance continues to develop. Treat any solar credit for a rental as requiring specific current guidance before you commit. Without a credit, solar equipment on a rental is depreciated. Ask the installer for an itemized invoice so the panels, inverters and any roof work can be classified correctly, since each may have a different recovery period and the roof work may be a building improvement.