On the Hill



This March, BOMA International testified before the U.S. House Ways and Means Tax Policy Subcommittee on the importance of the Energy Efficient Commercial Tax Deduction, commonly referred to as 179D, and offered solutions for making it more effective. BOMA International President Henry Chamberlain (pictured) spoke on behalf of BOMA International, explaining the importance of 179D as the sole federal energy efficiency incentive for commercial buildings. In a post-tax reform world, the fate of 179D is uncertain. Members of Congress are scrutinizing a host of tax incentives, including 179D, to see if they are still needed after the historic tax breaks embedded in tax reform for corporations and pass-through entities. While not perfect, 179D is the most effective way for the federal government to encourage and incentivize increased energy efficiency in commercial buildings.

First enacted by Congress in 2005, 179D has offered commercial building owners up to $1.80 per square foot (psf) to offset some of the costs for major energy-efficient improvements made to heating, ventilation and air-conditioning (HVAC) systems; the building envelope; and lighting upgrades that exceed ASHRAE Standard 90.1 by 50 percent. A partial deduction of $0.60 psf also has been available for retrofits of individual building systems. Buildings must be independently certified to receive a deduction. The tax deduction helps property owners who might not otherwise have the necessary capital make the decision to design, retrofit and operate energy-efficient structures.


The short-term nature of 179D has proven to be the biggest barrier to the utilization of the incentive.


Reducing energy use in buildings is something that affects not only building owners and tenants, but also the communities they support. Energy efficiency in commercial real estate reduces carbon emissions, as well as peak demand. Because energy efficient building systems have such a long-term payback period, it can be difficult to make the initial financial investment. Achieving 50 percent greater than code requirements—as required by 179D—can take decades to recoup costs through utility savings. 179D helps fill in the gaps and reduce the time frame to achieve a return on investment.

However, there are significant improvements that could be made to the legislation. Currently, 179D doesn’t fully take into account the age of a building. Although older buildings can greatly benefit from energy efficiency upgrades, the relatively recent shift in building codes towards efficiency leaves them at a significant disadvantage in achieving the 179D requirements. In its current form, the requirements to earn a tax deduction are out of reach for many existing buildings, which account for 98 percent of all building stock.

The short-term nature of 179D has proven to be the biggest barrier to the utilization of the incentive. For years, the tax deduction has been included in what Congress calls “tax extenders.” These extenders apply to a series of tax incentives that Congress deems useful, but they typically are enacted on a yearly—rather than permanent— basis. While this tactic makes it easier to pay for the extenders, it does not account for real estate’s planning horizons, which are generally three to five years for a capital investment.

A study commissioned by BOMA International, along with other members of the Coalition to Extend and Improve the 179D Tax Deduction, highlights the benefits of extending and modernizing the incentive. The study estimates that as many as 77,000 jobs will be created and $7.4 billion will be added annually to the gross domestic product (GDP) if Congress passes a long-term extension and modification of 179D. Strengthening and modernizing 179D would come with huge benefits, including the addition of $5.7 billion in personal income for the first 10 years after enactment.

Energy efficiency is considered a mainstay practice in commercial building operations and a core component of major building retrofits. Energy-efficient buildings enjoy lower operating costs and can attract tenants. Section 179D has proven to be a valuable industry resource over the past decade, and, with an extension and some adjustments, it will continue to drive the commercial real estate industry forward.

This article was originally published in the May/June 2018 issue of BOMA Magazine.