Last week the 114th Congress passed the Consolidated Appropriations Act, 2016 and the Protecting Americans from Tax Hikes Act of 2015 when the Senate passed H.R. 2029 by a vote of 65 to 33. On December 18, 2015 President Obama signed the acts into law that will extend over 50 expired or expiring provisions of the tax code.
by Stuart Kaplow
This blog post is not going to address the tax breaks for horse racing, Puerto Rican rum makers, NASCAR, or film productions, or for that matter most of the content of the 887 pages of the tax bill. Rather, for those interested in green building, this post will discuss the 179D energy efficient commercial building deduction that was to expire on December 31, 2014.
On page 834 of 887 pages, H.R. 2029 provides,
SEC. 190. EXTENSION OF ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.
(a) IN GENERAL.—Section 179D(h) is amended by striking ‘‘December 31, 2014’’ and inserting ‘‘December 31, 2016’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to property placed in service after December 31, 2014.
It is significant that this tax deduction was extended for 2 years through December 31, 2016 and retroactively for 2015. This now allows tax planning utilizing this deduction. Last year planning was not possible because the 2014 tax extender bill expired 14 days after it was enacted on December 31, 2014, and, as such was only applicable to the 2014 tax year. The 179D tax deduction had previously expired at the end of 2013.
Using the 179D deduction, building owners and tenants who make expenditures to cause new or renovated commercial buildings to be more energy efficient and designers of qualifying government buildings will again be eligible for a significant Federal tax deduction, an immediate one time depreciation deduction of up to $1.80 per square foot.
Also significant, the bill alters and creates a higher threshold to qualify for the deduction, when it provides,
SEC. 341. UPDATED ASHRAE STANDARDS FOR ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.
(a) IN GENERAL.—Paragraph (1) of section 179D(c) is amended by striking ‘‘Standard 90.1–2001’’ each place it appears and inserting ‘‘Standard 90.1–2007’’. …
(c) EFFECTIVE DATE.—The amendments made by this subsection shall apply to property placed in service after December 31, 2015.
The year 2007 standard is significantly more rigorous but meeting that standard will not be a high bar in states where the 2015 IECC is the adopted energy code. And with the LEED 2009 prerequisite of a 10% improvement in the proposed building performance rating for a new building compared with the baseline of that same ASHRAE Standard 90.1-2007, many if not most LEED 2009 certified buildings will still be eligible for this tax deduction even with the heightened standard.
The Section 179 provisions permanently extend the small business expensing limitation and phase-out amounts in effect from 2010 to 2014; and sets a new threshold at $500,000 and $2 million, respectively, from the current amounts of $25,000 and $200,000, respectively.
Also extended for 2 years by the bill are the $500 credit for the purchase of certain non-business energy efficient property and the up to a $2,000 credit available to the manufacturer of energy efficient homes, both of which advantage green building.
And while beyond the scope of most green building projects, there are other energy efficiency provisions in the bill including an extension of the phase out the wind production tax credit until 2020, as well as extending and phasing down the solar investment tax credit until 2022. Other energy technologies such as geothermal, biomass, landfill gas, incremental hydroelectric, and ocean energy projects will continue to qualify for the Production Tax Credit, but must start construction by December 2016.