The Continued Success of Code Sec. 179D

The Continued Success of EPAct Section 179D

IRC section 179D is extremely successful tax legislation based on the utilization of this provision by commercial building owners and government building designers. The legislation is essentially self-tax-funded: The required energy cost reductions result in a measured decrease in operating costs for the commercial property owners and result in reduced operating costs for taxpayer-funded government buildings. Commercial property users end up with increased taxable income from the energy savings. Government organizations can reduce budgets and lower their tax collection requirements.

The EPAct Section 179D Tax Opportunities

Pursuant to Energy Policy Act (EPAct) Section 179D, commercial property owners making qualifying energy-reducing investments in their new or existing locations can obtain immediate tax deductions of up to $1.80 per square foot. If the building project doesn't qualify for the maximum EPAct Section 179D $1.80 per square foot immediate tax deduction, there are tax deductions of up to $0.60 per square foot for each of the three major building subsystems: lighting, HVAC (heating, ventilating, and air conditioning), and the building envelope. The building envelope is every item on the building’s exterior perimeter that touches the outside world including roof, walls, insulation, doors, windows and foundation.

Most Common Commercial EPAct Users

Industrial Buildings and Warehouses

Warehouse owners and manufacturers in jurisdictions around the country, particularly in the major distribution center market such as Ohio, Georgia, Illinois, New York, New Jersey, Pennsylvania, and Texas, to name a few, have all taken advantage of EPAct 179D. Warehouses and manufacturing facilities can reap the benefits of EPAct 179D because they are typically simple spaces that can be retrofitted with ease, as they have less complicated energy demands than many other commercial building categories. These are large structures that tend to use the legislation to support energy-efficient lighting and natural gas heaters and roofs, often to prepare the property for solar photovoltaic (solar P.V.) installations .

Office Buildings

Office building owners and managers everywhere from large cities like New York City to smaller metropolitan areas like Charlotte use EPAct 179D to help finance LED lighting projects and energy-efficient HVAC upgrades, including chillers, thermal storage and demand control ventilation. While these buildings are more complex than warehouses or manufacturing facilities, the energy savings potential is perhaps greater than any other building category because of the long hours of electrical demand and air conditioning/heating. The enactment of energy benchmarking laws in several key jurisdictions including New York City, San Francisco, and Washington, D.C. has prompted many office building owners to make their properties more energy efficient in order to attract and retain increasingly energy-savvy commercial tenants .


National retail and supermarket brands are typically able to obtain chain-wide benefits from qualifying energy reduction strategies that can be replicated on similar store formats . In the supermarket context, refrigeration and freezers are the biggest energy-cost users, which combined with frequently specialized lighting demands makes for very high energy bills. This has spelt opportunity to supermarket owners and operators, who can now use cold-resistant LED lighting to present their merchandise to customers. Even in the non-supermarket retail context, LED lighting has significantly reduced many stores’ energy expenses while giving them optimal lighting to showcase their products.


Since the lowest point of the economic downturn, the domestic hotel industry has restructured and is using the legislation to address deferred upgrades to their buildings’ systems . This restructuring has been spurred on by the industry’s favorable tax treatment under EPAct, whereby the underlying rule set under Section 179D gives hotels and motels the maximum tax deduction for merely meeting the current building code requirement for lighting for that building category. This opportunity has prompted national hotel and motel chains to take advantage of the EPAct incentives on a franchise-wide basis.

Car Dealers

Car dealerships use the benefits of EPAct 179D to install LED showroom lighting and energy-efficient lighting in the service bays. Dealer numbers have decreased from 32,000 to 18,000 because of the economic downturn, resulting in concentrations of multi-branded, financially stronger dealer networks .

Parking Garages

Parking garages are one the most cost-efficient EPAct 179d building categories since nearly all of their energy expenses derive from their lighting systems. EPAct is a very important incentive for garages, which typically operate in high electric cost property dense areas. With much less involved planning than almost every other building categories, parking garage owners and operator can replace their old, energy-inefficient lighting for new LED, induction, or fluorescent lighting .

Most Common Government Building Design Categories

K-12 Public Schools

Kindergarten-12th grade public schools represent the single largest EPAct 179D category. There is a K-12 public school in every community in the country and K-12 school energy reduction helps reduce every community’s tax burden. At the same time, many school designers, parents, and administrators have placed a high emphasis on the role energy-efficient building systems play in the health and wellness of young children. Typically, there is no out-of-pocket expense to the taxpayers in the community for retrofitting their buildings either; Energy Service Companies (ESCO’s) pay for the up-front installation costs and are then reimbursed by the schools’ energy savings, making energy retrofits at public schools a win-win for everyone involved.

Federal Buildings

The federal government is the largest building owner and energy user in the country. In recognition of this fact, the federal government has measurable building energy reduction goals and has created several pieces of legislation mandating that all federal buildings undergo energy retrofits with various deadlines. When it comes to retrofitting federal buildings, the energy cost savings opportunities are huge.

Military Bases

In the course of supporting multiple wars the military has been making extensive use of Forts, Naval Bases, and support facility's in the U.S. and in U.S. territories. As these facilities are typically some of the largest and most complex of any properties in the county – they often function as cities unto themselves – they present exceedingly large energy and tax saving opportunities.

State Buildings

In addition to the many federal buildings around the country, every state has their own buildings to support their administrative, educational, judicial, transportation, and infrastructural need. In every state, there are sizable universities, office buildings, transportation hub, and courthouses that have been taking advantage of EPAct in order to reduce energy expenses. Of these, the largest EPAct beneficiary category has been state universities and community colleges.


Airports have been major EPAct beneficiaries particularly for parking garages and terminals. Development in this category has been guided by the Aerotropolis principle. The term “Aerotropolis” was coined by Dr. John D. Kasarda, Director of the Kenan Institute at the University of North Carolina at Chapel Hill. Dr. Kasarda describes the development as follows: "airports will shape business location and urban development in the 21st century as much as highways did in the 20th century, railroads in the 19th and seaports in the 18th." According to the Aerotropolis principle, infrastructural growth has been and will continue to center around access to major airports. In other words, where airports are involved, there are potential EPAct tax savings available to a host of building categories .


Charles Goulding, Jacob Goldman and Joseph Most, “Complete Warehouse Tax-Enhanced Energy-Efficient Design,” Corporate Business Taxation Monthly (August 2010), at 18.

Charles Goulding, Jacob Goldman and Taylor Goulding, “The Tax Aspects of Thermal Storage and Time-of-Day Pricing,” Corporate Business Taxation Monthly (November 2009), at 13.

Charles Goulding and Daniel Penza, “The Ten Least Energy Efficient Building in New York City,” Google Knol (April 1, 2011), available at: <>

Charles Goulding, Raymond Kumar, and Daniel Audette, “LED Building Lighting Drives Supermarket EPAct Tax Deduction,” Corporate Business Taxation Monthly (July 2011), at 13.

Charles R. Goulding, Jacob Goldman, and Taylor Goulding, “Hotels and Motels Most Favored Energy Policy Act Properties,” Corporate Business Taxation Monthly (March 2009), at 17.

Charles Goulding, Jacob Goldman, and Joseph Most, “The Energy Tax Aspects of Auto Dealer Re-Imaging Programs,” Corporate Business Taxation Monthly (January 2011), at 9.

Charles Goulding, Jacob Goldman, and D. Malcolm Thomas, “Multiple Lighting Technologies Drive Large EPAct Tax Deductions for Parking Garages,” International Parking Institute (August 2010), at 23.

Article Citation list