179d Tax Deduction to Tax Credit in 2013?

One of the hottest deductions relating to “green incentives”, the 179d deduction, might become a tax credit soon. As part of his FY 2013 federal budget, President Obama suggests modifying the existing energy efficient commercial building deduction (Section 179d of the IRS code) by transforming it to a much more valuable tax credit. This would increase the incentives available to install energy efficient improvements to existing and current buildings. It would also help the President reach his goal of a 20% reduction in energy consumption for commercial buildings over 10 years. The current 179d deduction is scheduled to expire at the end of 2013.

Currently, there are tax deductions available for up to $1.80 per square foot for greater than 50% energy savings, and up to a $.60 per square foot partial deduction. Under the current FY 2013 proposal, a tax credit would be available for the following energy reductions:

  • $.60 square foot for 20-30% energy reduction
  • $.90 square foot for 30-50% energy reduction
  • $1.80 square foot for greater than 50% energy reduction

Furthermore, the proposal includes special rules that would allow real estate investment trusts (REITs) to benefit from the new 179d tax credit. Other tax incentives in the 2012 budget aimed toward reducing energy consumption include modifying existing tax credit for qualified energy property from non-refundable to refundable tax credits, and providing additional tax credits for eligible property used in an advanced energy manufacturing project.

So far, the response to this change is very positive. The mayor of New York stated in a press release that “President Obama’s energy efficiency agenda is ambitious, his plan will spur improvements that pay for themselves through lower utility bills and help clean the environment, I look forward to working with him on it.” We at Anders will continue to monitor the changes to the 179d deduction and keep you posted.