By Steve Rizer
Will the 179D tax deduction ever become a meaningful incentive for making existing buildings more energy efficient? Will the deduction even be extended past its scheduled expiration date of Dec. 31, 2013? Answers to these questions apparently will have to wait until next year, at the earliest, despite recently introduced legislation to deal with the matter before the 112th Congress adjourns in early January.
The Commercial Building Modernization bill (S. 3591) would extend and enhance the tax deduction in Section 179D of the Internal Revenue Code for energy-efficient commercial and multi-family buildings. Introduced by Sens. Olympia Snowe (R-Maine), Jeff Bingaman (D-N.M.), Dianne Feinstein (D-Calif.), and Ben Cardin (D-Md.), the legislation would extend the tax deduction through the end of 2016 while modifying it to encourage efficiency retrofits in existing buildings.
In addition to encouraging greater efficiency in existing structures, the legislation includes a “performance-based” component to reward retrofits that produce verifiable energy savings when existing buildings lower utility consumption. The revisions also scale the tax deduction so that incentive amounts increase with greater energy savings.
The bill also would make it easier for a broader range of real estate owners to access 179D deductions, including real estate investment trusts (REITs), limited liability partnerships (LLPs), and other real estate ownership structures that cannot benefit from conventional tax incentives. The measure would modify the current provisions of Section 179D and allow REITs, LLPs, and other building owners the ability to allocate the tax incentive to other parties responsible for retrofit projects -- including contractors, engineers, architects, and lenders -- that could benefit from the deduction.
Although energy-efficiency proponents have urged passage of the legislation this year, the measure is not expected to undergo extensive congressional consideration until after re-introduction next year.