US Senate to Discuss Bill to Extend and Expand Energy Tax Deduction for Commercial Buildings

With the 179D deduction set to expire at the end of 2013, there have been lots of talks about expanding the deduction and turning it into a more valuable credit. Now the latest proposal entirely revamps the code section and creates a whole new set of benefits.

This proposal is in the very early stages of the Senate. The aggressive bill is being introduced by Senators Jeff Bingaman (D-NM) and Olympia Snowe (R-ME). Currently, Section 179D allows a tax deduction of up to $1.80 per sq. foot for commercial buildings with energy efficient installations and upgrades to HVAC, lighting or building envelope. Under this new proposed bill, which would include amendments to Section 179D and the addition of a Section 179F, new tax deductions would be implemented that may be extremely beneficial to commercial property owners.

Proposed changes include:

  • Extending the expiration date of the tax benefit from December 31, 2013 to December 31, 2016.
  • Increasing the maximum amount of the deduction from $1.80 to $3.00 per square foot.
  • Allowing deductions to be allocated to other parties not only when the property is owned by a government, but also not-for-profit and privately-owned commercial properties.
  • Allowing an allocation of the deduction not only to designers of energy efficient improvements but also building tenants, financiers, professional engineers, licensed contractors, energy services companies or other building professionals.
  • Permitting a partial allowance for some energy efficient upgrades, with an increase from $1.00 to $3.00 and $2.20 to $3.00, for the relevant energy efficient part of the upgrade.
  • Permitting exterior lighting systems, including lighting for parking lots, spaces or garages of a building to qualify that did not previously qualify.
  • Allowances that may make this a favorable tax strategy and incentive for real estate investment trusts (REITs).
  • The introduction of a new section, 179F, which provides for the deduction for retrofits of existing commercial and multi-family buildings. Highlights include:
    • Each certified retrofit provides for an allowable deduction equal to or lesser of the sum of the design deduction and the realized deduction or 50 percent of the total cost to develop and implement the certified retrofit plan.
    • Deductions range from $1.00 per square foot of 20 to 24 percent retrofit energy savings to $4.00 for 50 percent or more.
    • Commercial Historic buildings listed on the National Register of Historic Places increase by 20 percent.

As this bill is in the very early stages, we will update you as it moves through Congress and be the first to alert you of any changes!