By Capital Review Group

With the introduction of the “Commercial Building Modernization Act” (S. 3591), Senators Cardin (D- MD), Snowe (R-ME), Bingaman (D- NM), and Feinstein (D-CA) are leading the way to extend and simplify the §179D tax deduction targeted at improving the energy efficiency of existing buildings as well as new construction.  This bill was assigned to a congressional committee on September 20, 2012, which will consider it before possibly sending it on to the House or Senate as a whole. The bill will extend the §179D deduction, scheduled to expire at the end of 2013, through the end of 2016.  The Commercial Building Modernization Act (CMBA) proposes several improvements to the original legislation that will improve the effectiveness of §179D and simplify its application.  CMBA recommended improvements include measuring energy savings and improvements against the existing building’s own consumption baseline prior to the retrofit, linking the amount of the deduction to the savings achieved, and making the §179D deduction available for a broader range of real estate owners.  These changes should make it attractive to complete energy efficiency projects on existing buildings as well as level the playing field for all building owners.  A joint report issued by the U.S Green Building Council (USGBC), the Natural Resources Defense Council (NRDC), the Real Estate Roundtable, and the American Council for an Energy Efficient Economy estimate that more than 77,000 construction, manufacturing, and service jobs would be generated nationwide.

The Energy Policy Act was signed into law in April 2005 – the first significant energy legislation since 1992.  Title XIII §1331 stated that energy efficiencies were to be encouraged through a procedure to apply tax deductions for the implementation of specific and broad based building efficiencies.  The Act includes a tax deduction, known as the Energy-Efficient Commercial Buildings Tax Deduction (26 U.S.C. §179D) for investments in “energy-efficient commercial building property” designed to significantly reduce the heating, cooling, water heating, and interior lighting energy cost – or improve the performance – of new or existing commercial buildings.  Section 179D includes full and partial tax deductions for investing in commercial building improvements that are designed to increase the efficiency of energy-consuming functions such as lighting and HVAC.  The deduction available is up to $.60 per square foot each for lighting, HVAC, and building envelope – a potential for $1.80 per square foot if all three components/subsystems qualify.