PATH Act extends deduction for energy-efficient commercial buildings
Near the end of last year, Congress passed and President Obama signed into law the Protecting Americans from Tax Hikes (PATH) Act, a broader, bipartisan tax bill that extended (and in certain instances, made permanent) over 50 expiring provisions of the tax code, according to a press release.
Among a host of other pro-business tax provisions, the bill included a two-year extension of the Energy-Efficient Commercial Building Deduction, or section 179D of the tax code. Alliantgroup, an industry advisory group, applauded both the PATH Act's extension and modification of section 179D, citing the tax deduction as a vital incentive for U.S. job creation and economic growth and sound environmental policy.
"By extending 179D, Congress has done architects, engineers and contractors a major favor as we have seen firsthand how this incentive has helped companies expand both their workforce and the scope of their services," said Dean Zerbe, alliantgroup national managing director and former senior counsel to the U.S. Senate Finance Committee. "Not only is 179D critical to the success of U.S. designers and builders everywhere, it is simply just good tax policy, taking a completely technology neutral approach to incentivizing energy-efficiency."
Section 179D was originally passed by Congress as part of the Energy Policy Act of 2005 in response to data from the U.S. Department of Energy showing that 73 percent of all electricity consumption was by buildings, with about half of that coming from commercial buildings. The owner of an eligible building can claim 179D, but to allow architects, engineers, construction companies and energy service providers to qualify for what can be a $1.80 per square foot tax deduction, section 179D enables eligible designers and builders to qualify through energy-efficient enhancements made to government-owned buildings at the federal, state or local levels. As government entities do not traditionally pay tax, the owners of these buildings can allocate the accrued tax savings to the business responsible for the energy-saving enhancements.
For a building to qualify for the deduction, the energy based improvements must be made to either the HVAC, hot water or interior lighting systems or to the building's envelope. The PATH Act retroactively extends section 179D for 2015 and into 2016, but stipulates that buildings placed into service this year must meet ASHRAE 2007 standards as opposed to the old ASHRAE 2001 baseline. The bump up in the standard is a policy nod to modernizing energy-usage techniques and the need to raise the thresholds accordingly.
"Even with the higher baseline beginning in 2016, 179D will remain broadly applicable to architects, engineers and contractors across the country,” alliantgroup Senior Managing Director Rizwan Virani said. “The deduction will continue to provide these companies the funds necessary for broader reinvestment and will allow them to be more competitive not only in their bids, but serve to make them more competitive in the marketplace as a whole."
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