While the deduction has been in place for two decades, claiming it can be an involved process leaving small businesses and tax-exempt entities in particular facing “myriad barriers to accessing the 179 deduction. Many of the issues revolve around the fact that these organizations lack familiarity or comfort with such tax incentives. They often lack the institutional knowledge necessary to navigate the tax arena.”
The complexity of complying with 179D’s rules on qualifying energy efficiency projects has brought experts on navigating into the arena. One, a green buildings tax incentive expert with tax consultancy KBKG, has observed a widespread knowledge gap that has limited the deduction’s reach.
“Oversight of this has been a huge problem even for engineering firms that could benefit from it,” says Jesse Stanely, P.E., a firm principal. “A lot of firms we talk to have heard of it but have decided not to pursue it, leaving millions of dollars on the table.”
Still, he says, the program has drawn enough participation over the years to make its impending loss problematic. Spurring investment in building renovations, making buildings more energy efficient and creating/supporting jobs, the incentive has proven to be a powerful leveraging tool. Without it, he predicts, improvements in building stock that could produce decades of savings on energy usage could go wanting.
“This will continue to be a conversation because when you look at the electrical grid and the need to make space for things like AI and more manufacturing capacity reducing electrical usage in buildings will always make sense,” Stanley says. “Some of these renovated buildings could be around another 50 years so saving just 10% a year on energy costs can be significant.”
The end of 179D could be coming at a bad time in the current building upgrade cycle. An expert on the distressed property industry told Facilities Dive in July that the deduction has been valuable to entities looking to acquire and repurpose obsolete properties or those in foreclosure, a market component that has been growing.
Paul Williams, editor of Foreclosurepedia, said the deduction “has played an underappreciated role in revitalizing distressed assets — particularly those languishing in default or under special servicing.” Energy efficiency upgrades, he added “were not just green virtue-signaling — they were crucial to stabilizing occupancy, increasing market valuation, and meeting compliance thresholds required by insurance carriers or municipalities.”
Barring some sort of unlikely administrative fix, though, the 179D’s demise is imminent. All that’s likely left for those seeking a last claim on it is a concerted effort to finalize plans and start projects before next July.
Writing on the topic, Stanley emphasized the importance of quick action. “Every delay in planning, design, or documentation could result in forfeiting tens or hundreds of thousands in deductions. 179D studies should be initiated now to secure outstanding allocation letters and ensure designs meet energy modeling requirements.”
