Many business investment decisions are affected by their anticipated tax consequences. A key component of tax treatment is depreciation. The U.S. Internal Revenue Service (IRS) defines depreciation as “an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property” (IRS 2011a). In effect, depreciation “spreads” the cost of a durable asset across the years that the asset will be utilized. This paper outlines the consequences for business investment in newer, more efficient assets when depreciation rules fail to reflect the actual service lives of such equipment. We focus this discussion on the tax treatment of three types of systems: heating, ventilating and air-conditioning (HVAC); manufacturing process equipment; and combined heat & power (CHP) systems. The bottom line is that current depreciation periods are often longer than useful equipment lives, providing a strong disincentive for equipment replacement. In addition, depreciation periods can vary with who owns the equipment, thereby incentivizing some owners and not others. As part of tax reform it is important that depreciation periods be rationalized so that reasonable investments can proceed. In addition, the energy efficiency of many equipment classes has increased greatly in the last two decades. Leaving undepreciated and inefficient equipment in place affects competitiveness and the environment.