We’ve spoken a lot about expired tax provisions recently and it looks like we finally got a bit of a reprieve. Earlier this month, the Senate Finance Committee voted to approve a two-year extension of the Energy Efficient Commercial Buildings Tax Deduction (Section 179D). This was part of the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act that’s been doing battle in Congress.
Section 179D allows a taxpayer to take a deduction equal to commercial building energy-efficiency expenditures as part of the building’s interior lighting systems, heating, cooling, ventilation, and hot water systems, or building envelope. Certification must be obtained to verify that the retrofits are installed as part of a plan to reduce energy costs by 50% or more in comparison to a specified minimum standard. The passed legislation also allows 501(c)(3) non-profit organizations to transfer the deduction to the architect or designer primarily responsible for designing the energy efficiency project. This ability has, historically, been available only for public building projects. Under the new provision, the 50% energy savings certification would be calculated on energy efficiency improvements above a new baseline reference. The approved modification moves the baseline to a more current standard which make achieving the accelerated tax deduction with lighting more difficult. The Commercial Buildings Tax Deduction was enacted into law as a provision of the Energy Policy Act of 2005, and represented the first performance-based federal tax incentive aimed at energy efficiency improvements in commercial buildings. Congress has acted twice to extend the provision. The last extension was for five years and expired on December 31, 2013.
The extension of Section 179D is welcome but reminds us that there is still work to be done. A number of tax breaks for individuals, including the deduction for state and local sales taxes and the deduction for mortgage insurance premiums, as well as some key tax benefits for business, including the R&D tax credit, all expired last year, leaving us all to wonder what’s next. Finance Committee Chairman Ron Wyden (D-OR) will certainly want to have the full Senate consider the EXPIRE Act in entirety as soon as possible, since the business community in particular is demanding answers on more than 50 expired tax provisions. While strong bipartisan support for the extenders legislation in committee bodes well for full Senate consideration, whether that legislation can garner full Congressional (Senate + House) support remains to be seen. House Ways and Means Committee Chairman Dave Camp (R-MI) has announced that his committee will be reviewing the list of expired provisions in the coming weeks to decide which deserve to be made permanent and which are no longer necessary. He has indicated that some hearings on these issues are in store but has not set a timetable for a markup or floor consideration of an extenders package. Accordingly, it is unclear when and if the legislative amendments regarding extenders will become law. The popular thought all along has been that consideration of tax extenders wouldn’t happen until after the November elections -- in a lame duck session. But given this recent display of bipartisan support for extending 179D, there is a chance extenders may take center stage in the mid-term elections this year. Stay tuned and be prepared, as always.