What’s Available in 2026
The federal incentive landscape for commercial HVAC changed more in the past year than in the previous decade. The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) ended some long-running programs and made others permanent. Here is where things stand for equipment placed in service in 2026, based on IRS and Department of Energy guidance current as of August 2026.
- Section 179 expensing — the workhorse. HVAC systems installed in nonresidential buildings are explicitly listed as qualifying real property under Section 179. For tax years beginning in 2026, a business can write off up to $2,560,000 of qualifying purchases in year one, with the deduction phasing out above $4,090,000 in total equipment spending. For most facilities, this means a full RTU, chiller, or VRF replacement can be deducted in the year it goes into service rather than depreciated over 39 years.
- Section 48 geothermal ITC — the survivor. While wind and solar credits were phased out, the investment tax credit for geothermal heat pump systems was preserved: 30% of system cost through 2032 (projects over 1 MW must meet prevailing-wage and apprenticeship requirements for the full rate), stepping down in 2033–2034 and ending after December 31, 2034.
- 100% bonus depreciation — with a catch. OBBBA made 100% first-year bonus depreciation permanent for qualifying property acquired after January 19, 2025. Building HVAC systems generally do not qualify on their own (they are 39-year real property), but components of an interior fit-out may. This is a cost-segregation question for your tax professional.
- Section 179D — closed to new starts. The energy-efficient commercial buildings deduction (up to $5.81/sq ft in 2025 with prevailing-wage compliance) does not apply to projects whose construction begins after June 30, 2026. If your project broke ground — or hit the 5% spending safe harbor — before that date, you can still claim it when the building is placed in service.
What Changed From 2025
- 179D is effectively over for new projects. Through 2025 it was the centerpiece of commercial HVAC tax planning. Projects that began construction by June 30, 2026 keep their eligibility; anything starting later gets nothing under 179D.
- Section 179 limits rose to $2,560,000 (from $1.25M pre-OBBBA), making first-year expensing the primary federal lever for most equipment replacements.
- The geothermal ITC was untouched while most other clean-energy credits were cut — a deliberate carve-out that makes ground-source systems comparatively more attractive.
- One point of frequent confusion: the widely publicized 25C credits applied only to residential property and expired December 31, 2025. They never applied to the commercial buildings this page covers.
Which Equipment and Projects Qualify
- RTU and packaged unit replacement: Section 179 expensing in the placed-in-service year. No efficiency threshold applies to 179 itself, but higher-efficiency units stack with utility rebates.
- Chiller upgrades: Section 179 expensing; large plants considering ground-source or heat-recovery designs should evaluate the 30% geothermal ITC before locking in a conventional design.
- Building automation and controls: qualify under Section 179; controls-driven optimization was also a common 179D pathway for projects grandfathered under the June 30 construction-start rule.
- Energy-efficiency retrofits: stack federal expensing with state and utility money — see our guide to EmPOWER Maryland commercial HVAC rebates for 2026, which can cover 40–70% of project cost in Maryland utility territories.
How to Document It
- Keep invoices separating equipment, labor, and design costs, with placed-in-service dates.
- For grandfathered 179D claims: retain proof of construction start (contracts, permits, progress records or the 5% cost safe harbor) and the required certification by a qualified individual using DOE-approved modeling.
- For the geothermal ITC at the full 30% rate on larger systems: maintain prevailing-wage and apprenticeship records from day one — they cannot be reconstructed after the fact.
- Coordinate federal claims with utility rebates; incentives received can affect depreciable basis.
This is general information, not tax advice — confirm specifics with your tax professional.
Scope Your 2026 Project With the Incentives Mapped
Arminco Air designs and installs commercial HVAC systems across Washington DC, Maryland, and Northern Virginia from our Sterling, VA base, and we build the incentive picture — federal expensing, the geothermal ITC where it fits, and utility rebates — into project scoping so your CFO sees the real net cost.
Call (703) 430-7100 or reach us through the contact page.
Frequently Asked Questions
What HVAC system qualifies for a tax credit in 2026?
For commercial buildings, the only true federal tax credit left for HVAC in 2026 is the Section 48 investment tax credit for geothermal heat pump systems — 30% of system cost, available through 2032. Conventional equipment such as rooftop units, chillers, VRF, and building controls no longer earns a federal credit, but it typically qualifies for Section 179 first-year expensing of up to $2,560,000. The residential 25C credit expired December 31, 2025 and never applied to commercial property.
Can I still claim the Section 179D deduction in 2026?
Only for projects whose construction began by June 30, 2026 — meaning significant physical work had started or at least 5% of total project cost was incurred before that date. Qualifying projects claim the deduction when the property is placed in service, even if that happens later. Projects starting after the deadline are not eligible under current law.
Does a rooftop unit replacement qualify for Section 179 expensing?
Yes. HVAC for nonresidential buildings is specifically enumerated as qualifying real property under Section 179. The unit must be placed in service during the tax year, and the 2026 limits apply: up to $2,560,000 deducted, phasing out above $4,090,000 in total purchases.
What records do I need to support a claim?
Invoices with placed-in-service dates, separated equipment and labor costs, permits and contracts proving construction-start dates for grandfathered 179D claims, the required third-party certification for 179D, and prevailing-wage and apprenticeship records where the full 30% ITC rate depends on them.
Do utility rebates stack with federal incentives?
Generally yes — utility programs like EmPOWER Maryland pay rebates on the same equipment that qualifies for federal expensing, though rebates received can reduce the depreciable or creditable basis. Coordinate both before the project starts; this is general information, not tax advice, so confirm specifics with your tax professional.