Leaders Call on Congress to Renew Efficiency Incentive

Advocates are urging Congress to make a key deduction permanent and increase the federal tax code's only incentive for energy upgrades.
Detail from photograph of the U.S. Capitol at dawn. Courtesy of the Architect of the Capitol.

In the wake of last year’s landmark tax legislation, real estate industry leaders are pressing for action on some unfinished business: renewing and updating a key deduction for energy efficiency. Advocates are proposing to increase the 13-year-old incentive and make it permanent to avoid the current piecemeal approach that often makes it difficult for owners and managers to plan upgrades.

At issue is the Energy Efficient Commercial Building Tax Deduction, which was established in 2005 and allows owners to deduct as much as $1.80 per square foot for improvements to eligible properties. applies to properties and systems placed in service before Jan. 1, 2017. Informally known as 179D after its Internal Revenue Service code number, the deduction was not included in the 2017 Tax Cuts and Jobs Act and expired at the end of 2017. The Bipartisan Budget Act of 2018, signed by President Trump on Feb. 9, extends 179D retroactively through 2017 but takes no further steps.

“We believe that while changes to the expensing provisions of the Tax Cuts and Jobs Act are helpful to certain businesses and technologies, they are not a substitute for the incentive provided by Section 179D,” said Bryan Howard, legislative director for the U.S. Green Building Council, in a written statement to the House Ways and Means Subcommittee on Tax Policy.

Eligible property owners undertaking large-scale upgrades to the building envelope, HVAC systems and lighting upgrades could deduct $1.80 per square foot. Improvements to individual systems are eligible for or $.60 per square foot for improvements to individual systems. Properties and systems placed in service before Jan. 1, 2016 must reduce total energy costs by at least 50 percent compared to a building meeting ASHRAE Standard 90.2-2001; for properties placed in service before Jan. 1, 2017, the yardstick is ASHRAE Standard 90.1-2007.

Built to Last

BOMA International President & COO Henry Chamberlain testified before a House Ways and Means subcommittee last month on the importance of updating the federal energy efficiency tax credit.

Even before 179D expired, Congress’ practice of temporary extensions hampered its effectiveness, its supporters contend. “The biggest barrier for our members in utilizing this incentive is the historical short-term nature of its extension. The recent short-term or retroactive extensions don’t account for real estate’s planning horizons, which are generally three to five years for a capital investment,” said Henry Chamberlain, president & COO of Building Owners and Managers Association International, told the tax policy subcommittee during a March 13 hearing.

“Even when the deduction was extended for five years between 2009 and 2013 by the Emergency Economic Stabilization Act of 2008, the recession made these investments very difficult, and by the time the industry found itself on stronger financial footing, the extension was set to expire again,” he added. Noting that the provision is the only federal tax deduction for commercial property energy efficiency, Chamberlain pointed out, “These upgrades are particularly necessary for older building stock.”

In addition to restoring the 179D deduction, its supporters want to raise the incentive from $1.80 to $3.00 per square foot and make the deduction permanent. In a June 2017 study, Regonal Economic Models Inc. concluded that maintaining the $1.80 deduction for 10  years would create 41,000 jobs over that stretch. The report, which was sponsored by a coalition of non-profit organizations and private companies, also estimate that increasing the incentive to $3.00 would generate 76,529 jobs annually.