Over the past decade, commercial building owners and designers of government-owned buildings have significantly benefitted from the §179D Energy-Efficient Commercial Buildings deduction. Installing energy-efficient lighting, HVAC, and building envelope components, not only can reduce a building’s carbon footprint or lower its utility bills, but eligible taxpayers may obtain a deduction ranging from $0.30-$1.80 per square foot.
Unfortunately, the §179D deduction expired on December 31, 2016. This deduction has always had bipartisan support and been retroactively extended multiple times in the past. There are currently several efforts under way to extend this valuable tax benefit.
Currently, a bill named “Clean Energy for America Act” was introduced May 4, 2017, by Senator Ron Wyden and 21 other senators. The bill includes extension and modification to §179D as part of 44 existing energy tax incentives.
Below is a summary of the proposed changes to §179D:
Example: If a building qualifies for 50 percent reduction in energy consumption, the total deduction will be ($1+$1.25 = $2.25/SF). Unlike the existing regulations, the savings is based on energy consumption rather than energy costs.
Example: If a building qualifies for 50 percent reduction in energy consumptioncompared to the existing building, the total deduction will be ($1.25+$3 = $4.25/SF).
In addition to government entities, 501(c) nonprofit organizations can allocate the deduction to designers.
The bill will renew 179D and 179F through 2018.
In addition, there were three house resolutions introduced during the previous session of Congress (114th) that were not enacted.
HR 6360 and HR 6361 were introduced by Rep. Alan Grayson on November 17, 2016. This bill would extend §179D through 2017 and 2018, respectively.
HR 6376 was introduced by Rep. Dave Reichert on November 17, 2016. This bill expanded §179D by :
Allowing 501(c)(3) nonprofits to allocate the deduction to designers
Allowing partnerships and S corps to receive the deduction allocated at the partner or shareholder level
Exempting qualified low-income buildings from the requirement to reduce the basis of the property by the amount of the deduction.
We believe that lawmakers will review the §179D deduction and include it in some form as part of new tax reform proposals. For more information on the status of § 179D or to inquire about a study for a prior tax year, please feel free to reach out to one of our business development directors.