Op-Ed: Architects and the 179D Energy Efficient Tax Deduction

Op-Ed: Architects and the 179D Energy Efficient Tax Deduction

The AIA’s managing director of government relations and outreach argues for an extension of this tax deduction.

By Andrew Goldberg

As previously reported, the Energy Efficient Commercial Building Tax Deduction (Section 179D) is scheduled to expire at the end of 2013. In this Op-Ed, Andrew Goldberg, the AIA’s Managing Director of Government Relations and Outreach, examines what this deduction has meant for architects and argues for an extension.

With faith in government at historic lows, it’s tempting to presume that any program Congress creates will turn out to be an ineffective mess. That’s certainly true some of the time. But when a government program achieves its goals, even partially, it’s important to sit up and take notice.

In 2005, Congress created the Energy Efficient Commercial Building Tax Deduction, commonly known as Section 179D. The idea is simple: a building owner can reduce his or her tax burden by making a new or renovated building more energy efficient. It sets fairly high energy-saving standards so that owners have to commit to serious reductions. And it uses a performance path to get there, allowing architects to use innovative design solutions.

What’s more, Congress added in a provision to help public building owners make their facilities greener. Since governments don’t pay taxes, the program allows agencies to give the tax break to the designer. The AIA worked to convince the IRS to issue guidelines to make sure architects were eligible.

The result? Many architecture firms have received a sizable reduction in their taxes, all while designing buildings that use less energy and are good for the environment. It has helped firms of all sizes. Says Mark Pape, principal and director of tax for RTKL: “We have taken advantage of 179D deductions on several government projects, which has provided us a tremendous incentive to go above and beyond in designing energy efficient property. 179D has really made a difference in our bottom line and is a great tool for financing energy efficient projects.”

Let’s be clear: 179D is far from perfect. Some of its rules are very complex; there are some building projects where it is not cost-effective; and technical glitches in the tax code mean that some firms do not get the full benefit.

But at a time when the design and construction industry has faced significant economic hardship and building owners are confronting higher energy bills, 179D has made a positive difference.

Unfortunately, what Congress giveth it also might take away. You see, 179D has an expiration date: December 31, 2013. Buildings placed into service after that date can’t take advantage of the deduction unless Congress extends the deadline. Some have argued that because 179D is not perfect, it should be scrapped altogether. Others have proposed ambitious reforms with high price tags. If Congress does not find a way forward, come 2014 a successful program that helps architects design sustainably will be gone, possibly forever.

A far better route would be to keep what works, fix what doesn’t work, and make sure that building owners keep having incentives to push the envelope on energy efficiency.

There may be a good deal wrong with Washington these days. Let’s make sure we don’t lose something that’s right.

Andrew Goldberg is managing director of government relations and outreach for the American Institute of Architects.

BOMA Urges Senate to Pass Extension of Tax Deductions for Energy Efficiency

BOMA Urges Senate to Pass Extension of Tax Deductions for Energy Efficiency

FOR IMMEDIATE RELEASE

The Commercial Building Modernization Act Enhances Section 179D Deductions

(WASHINGTON, D.C. – October 16, 2012) The Building Owners and Managers Association (BOMA) International urges the U.S. Senate to pass S. 3591, also known as the Commercial Building Modernization Act (CBMA), which would extend and enhance the tax deduction at Section 179D of the Internal Revenue Code for energy efficient commercial and multifamily buildings. Introduced by Senators Olympia J. Snowe (R-Maine), Jeff Bingaman (D-N.M.), Dianne Feinstein (D-Calif.) and Ben Cardin (D-Md.), the bipartisan legislation would extend the tax deduction through the end of 2016, while modifying the deduction to encourage efficiency retrofits in existing buildings. Absent congressional action, the deduction will expire at the end of 2013.

While 179D has been successfully utilized to encourage energy efficiency in new construction, it has yet to be a meaningful incentive for energy efficient upgrades to retrofit existing buildings. The revisions to Section 179D found in the Commercial Building Modernization Act will encourage greater efficiency in existing structures and include a “performance-based” component to reward retrofits that produce verifiable energy savings when existing buildings lower utility consumption. The revisions also scale the tax deduction so that incentive amounts increase with greater energy savings.

The CBMA revisions also would make it easier for a broader range of real estate owners to access 179D deductions, including real estate investment trusts (REITs), limited liability partnerships (LLPs), and other real estate ownership structures that cannot benefit from conventional tax incentives. The CBMA modifies the current provisions of Section 179D and allows REITs, LLPs, and other building owners the ability to allocate the tax incentive to other parties responsible for retrofit projects-including contractors, engineers, architects and lenders-that can benefit from the deduction.

“BOMA International fully supports the passage of this legislation and the extension of the 179D tax deductions,” said BOMA International Chair Joseph W. Markling, managing director of Strategic Accounts at CBRE. “It not only encourages energy efficiency and savings through improved incentives, but the resulting increase in retrofit projects would create thousands of jobs in the construction and green energy industries.”

BOMA, in association with a number of national real estate organizations, will be sending a letter in support of the legislation to the Senate Finance Committee and the Senate Energy & National Resources Committee in the coming weeks.

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About BOMA International
The Building Owners and Managers Association (BOMA) International is an international federation of more than 100 local associations and affiliated organizations. Founded in 1907, its 16,500-plus members own or manage more than nine billion square feet of commercial properties. BOMA International’s mission is to enhance the human, intellectual and physical assets of the commercial real estate industry through advocacy, education, research, standards and information.www.boma.org.

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