The Commercial Buildings Energy Efficiency Tax Deduction (179D)

The Commercial Buildings Energy Efficiency Tax Deduction, commonly referred to as 179D, is the only direct federal incentive designed to assist commercial building owners in recovering some of the costs for high-efficiency components and systems. The commercial buildings must meet certain energy-saving performance targets to receive the incentive.

Originally enacted by the Energy Policy Act of 2005, the incentive allows for a tax deduction of up to $1.80 per square foot to owners of existing and new buildings who install energy-efficient building components that reduce a building’s total energy consumption by at least 50 percent above the ASHRAE 90.1 (2001) standard.

The three building components that can be applied are:

  1. Interior lighting systems.
  2. Heating, cooling, ventilation and hot water systems.
  3. Building envelope.

A partial deduction of $0.60 per square foot is also available. Those energy reduction targets are 20 percent for interior lighting systems, 20 percent for HVAC and hot water systems, and 10 percent for the building envelope.


Congress has historically been very supportive of the 179D tax incentive. Originally set to expire in 2007, the deduction has been extended several times--most recently until December 31, 2016. Before its expiration, the deduction was the only available tax incentive allowing developers to deduct some of the costs associated with installing energy efficient upgrades.

The 179D deduction has been touted by supporters as the best way for the federal government to incentivize energy efficiency in the built environment. Among suggested improvements to the deduction is to change it to a tax credit, and to increase the incentive amount from $1.80 per square foot to $3.00.

Proponents are now focusing their efforts on renewing the provision, which expired along with a host of other tax provisions known as “Tax Extenders” at the end of 2016. Reestablishment of the deduction will be an issue in the debate over tax reform.


In December 2015, Congress passed and the President signed the Protecting Americans from Tax Hikes Act ("PATH" Act) that extended 179D through December 31, 2016.

The deduction is currently expired. Projects placed in service prior to January 1, 2017, may still qualify for the incentive, however projects placed in service after that date will not qualify unless Congress passes legislation to retroactively renew the deduction.


NAIOP supports reestablishing the tax incentive for energy efficiency improvements in commercial buildings, and making it part of the permanent tax code.


With the expiration of 179D, there are now few federal tools available to promote advanced energy efficient technologies to create high performance buildings.

  • Congress should restore and make permanent the 179D tax deduction.
  • Modifications to the incentive should include converting the deduction to a tax credit and increasing the monetary benefit from $1.80 a square foot to $3.
  • A Real Estate Investment Trust (REIT) tax structure typically does not allow for the use of a tax deduction or credit. To broaden the base of projects that could tax advantage of the incentive, allowances should be made to pass on the tax savings to a REIT’s tenants or the design professionals of the project.