In 2005, Congress passed the Energy Policy Act which created the 179D Energy-Efficient Commercial Building Deduction. The 179D deduction allowed owners of commercial buildings and designers of government buildings to take a federal tax deduction of up to $1.80 per square foot for the installation of energy-efficient interior lighting, HVAC and building envelope systems. While extended several times in the past, 179D expired as of December 31, 2016.
The 179D deduction has been extremely beneficial to taxpayers, and the uncertainty of its future is just another variable that may complicate year-end tax planning. This article attempts to provide some insight on one of the bills that may extend 179D through 2018.
The Clean Energy for America Act was introduced on May 8, 2017 and proposed the following relative to 179D:
- 179D (utilizing the rules that expired on December 31, 2016) would be extended from December 31, 2016 to December 31, 2018.
- 179D would be amended for new commercial buildings that are placed in service after December 31, 2018:
- The value of the deduction would be $1.00 increased (but not above $4.75) by $0.25 for every 5 percentage points by which the building’s efficiency ratio is greater than 25%.
- The energy efficiency standard would be revised from ASHREA 90.1-2007 to 90.1-2016.
- 501(c)(3) nonprofits would be eligible to allocate the 179D deduction to the primary designer.
Example: A new commercial building that produces a 55% energy efficiency ratio would generate a 179D deduction of $2.50 per square foot ($1.00 + 1.50).
The Clean Energy for America Act also introduces the Section 179F deduction:
- 179F would be limited to existing commercial buildings that are placed in service on or after December 31, 2018.
- The value of the deduction would be $1.25 increased (but not above $9.25) by $0.50 for every 5 percentage points by which the building’s efficiency ratio is greater than 20%.
- 501(c)(3) nonprofits would be eligible to allocate the 179F deduction to the primary designer.
Example: An existing commercial building that produces a 55% energy efficiency ratio would generate a 179F deduction of $4.75 per square foot ($1.25 + 3.50).
Consistent with the prior legislation, the proposed 179D and 179F rules indicate that the property must be certified by an independent third party who is qualified to perform a study certifying that the energy standards have been met.
While predicting future legislation is extremely difficult, the Clean Energy for America Act gives taxpayers hope that the 179D deduction could be extended beyond 2016.
If you have any questions about 179D and the potential benefits to your company, do not hesitate to contact Mark Di Pietrantonio or another member of the Schneider Downs Construction Focus Group.