Proposed EPAct Deduction Extension Would Create Deep Retrofit Tax Incentive

Extension Proposed for EPAct Efficiency Deductions

The current commercial building energy tax incentive, known as Section 179D or EPAct deductions, is scheduled to expire Dec. 31, 2013. A bipartisan bill to extend and modify Section 179D through 2016 was introduced in the Senate in the fall. The proposed EPAct deduction extension would  create a deep retrofit tax incentive forf existing buildings.

Even if the extension passes, however, facility managers should consider acting on energy efficient lighting projects in 2013, because the proposed extension would raise the bar on qualifying for the deduction. Here are the highlights of the proposal as it would affect Section 179D:

• Current law requires the project to beat the 2001 version of ASHRAE 90.1 in the current law; under the proposal, that standard would change to the tougher 2004 revision and then to the still more stringent 2007 version of 90.1.
• The maximum deduction would jump from $1.80 per square foot to $3 per square foot, and the benefits for each individual measure (lighting, HVAC, building envelope) would increase from $0.60 per square foot to $1 per square foot.
• The proposal would enable all buildings — including REITs and not-for-profit schools, universities and hospitals, as well as other nonprofits — to assign the deduction to members of the energy project team (both financial and technical parties).
• A power allowance credit will encourage the use of lighting controls to help offset the tighter wattage limits under ASHRAE 2004 and 2007.

New section 179F targets older buildings that are at least 10 years old. These buildings can earn a deduction of up to $4 per square foot by following a certified retrofit plan that requires a building to establish an energy benchmark based on current performance and then take steps to beat its own benchmark, as opposed to an ASHRAE standard. The deduction would come in two parts: a deduction for design and a deduction for implementation. Measurement and verification at the two-year mark is required to avoid recapture of the tax incentive.

— Charles G. Goulding, Energy Tax Savers