Market Transformation Through Expanded Impact of 179D

The Internal Revenue Code Section 179D federal tax deduction is a tax incentive for energy-efficient commercial building properties. This tax deduction is available for installing energy-efficient systems affecting the envelope; interior lighting; HVAC; and service water heating systems. However, the impact and effectiveness of the deduction has been historically limited by the complexity of the compliance pathways, the intermittent availability of the deduction, and the low value of the deduction. These complexities make the deduction more approachable to sophisticated building owners and large projects that can invest resources in understanding the complicated compliance approach. In addition, tracking use of the 179D deduction is difficult because there are no specific 179D forms or IRS records tied to this deduction. This paper presents a background summary and details the historical usage and impact of 179D from an industry perspective with data provided through outreach to engineering and tax consultants. We also explore the recent revisions to 179D by the Consolidated Appropriations Act of 2021 and how these revisions may affect the effectiveness of the tax deduction. The most significant of these revisions includes making the tax deduction permanent, as well as updating the reference standard. Finally, this paper discusses 179D research needs to identify key deployment strategies to expand the impact, focusing on accessibility to small buildings and small businesses with limited resources and knowledge of the deduction, as well as other pathways included in recently proposed legislation.