Section 179D: Energy-Efficient Commercial Building Deduction
NAHB Policy
Energy efficiency is best achieved through the use of voluntary, market-based programs. Efficiencies can be maximized by directing incentives at both existing and new homes, including options for existing home energy efficiency upgrades, supporting financing alternatives that reflect energy cost savings and developing alternative sources of energy. (4/05 Resolution #7)
Present Law
Section 179D provides a deduction equal to energy-efficient commercial building expenditures made by the taxpayer. Qualified property is defined as property:
Which is installed on or in any building located in the United States that is within the scope of Standard 90.1-2001 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America (ASHRAE/IESNA)
Which is installed as part of the interior lighting, the heating/cooling/ventilation/hot water system, or the building envelope
Which is certified as being installed as part of a plan designed to reduce total annual energy costs by 50 percent or more in comparison to a reference building that meets the minimum requirements of Standard 90.1-2001 (as in effect on April 2, 2005)
Eligible buildings include commercial properties or multifamily residential buildings of four stories or more above grade. The deduction is limited to an amount equal to $1.80 per square foot of the property placed in service.
The statute requires certain certification requirements to be met based on the 2005 California Residential (or Nonresidential) Alternative Calculation Method Approval Manual. The basis of the property for which a deduction is allocable shall be reduced by the amount of the deduction. Certain interaction requirements apply for buildings for which the Section 48 credit is claimed.
In the case of a building which does not meet the 50 percent energy reduction requirement, a partial deduction is allowed for system specific energy reduction property installation including: lighting, the heating/cooling/ventilation/hot water system, or the building envelope. The individual system must achieve a 50 percent energy reduction. The partial deduction is limited to $0.60 per square foot.
The provision is effective for property placed in service after December 31, 2005, and prior to January 1, 2014.
Legislative History
Section 179D was established by H.R. 6, the Energy Policy Act of 2005. The sunset for Section 179D was extended by one year by the Tax Relief and Health Care Act of 2006, and further extended for five more years by the Emergency Economic Stabilization Act of 2008.
Regulatory Background
The IRS has published Notice 2006-52, which provides technical background information regarding the deduction and its use.
Analysis
The original revenue estimate for the deduction indicates a revenue loss of $243 million over ten years (with a sunset of 12/31/07).
