Imran Syed, PE, LEED AP, Senior Manager, Cost Segregation & EPAct §179D

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:

  • Section 179D will be limited to new commercial buildings and the tax benefits will be increased:
    • The applicable dollar value will be an amount equal to $1 and will increase to a maximum of $4.75 based on the reduction in energy consumption.
    • The baseline standard will be ASHRAE 90.1-2016 in lieu of ASHRAE 90.1-2007.
    • The deduction increases by $0.25 for every five percentage points by which the efficiency ratio is greater than 25 percent (annual energy consumption).

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.

  • Section 179F has been introduced for energy-efficient improvements to existing commercial buildings.
    • The energy savings is measured by comparing the projected annual energy consumption of the renovated building to the annual energy consumption of the existing building prior to the energy improvements being placed in service.
    • The applicable dollar value of the tax deduction will be an amount equal to $1.25 and will increase to a maximum of $9.25 based on the reduction in energy consumption. The deduction increases by $0.50 for every five percentage points by which the efficiency ratio is greater than 20 percent.

Example: If a building qualifies for 50 percent reduction in energy consumption compared 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.

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