Policy Issues

Energy Efficiency Tax Incentives - E-QUIP

ISSUE

Bonus depreciation and cost recovery rules from the 2017 Tax Cut and Jobs Act (TCJA) have an unintended consequence to discourage real estate businesses from making energy efficiency investments in buildings.

Congress should adopt a cost recovery period, aligned with the useful lives of energy efficient equipment, to promote productive business investment by spurring high performance upgrades in commercial and multifamily assets. A meaningful tax incentive to encourage energy efficiency retrofit projects checks many policy boxes. It will help create well-paying jobs in the construction, design, and energy sectors; boost equipment manufacturing; enhance our country’s energy independence; and reduce the built environment’s carbon footprint.

Position

The Real Estate Roundtable has developed a proposal for Congress to reform the tax code and provide a 10-year accelerated depreciation period for Energy Efficient Qualified Improvement Property – or “E-QUIP.”

E-QUIP would cover the main systems that affect a building’s energy consumption: (1) heating and cooling; (2) lights; and (3) window and roofing “envelope.” Eligible E-QUIP components that qualify for 10-year depreciation would stretch beyond minimum code requirements that buildings must ordinarily meet, and reach higher levels of energy efficiency.

E-QUIP builds on Republicans' approach from the TCJA to encourage business investment though accelerated cost recovery and shift towards a cash-flow business tax system. It also reflects Democratic priorities for tax incentives that encourage energy efficiency, discourage reliance on fossil fuels, and address climate change.

Research is currently underway to assess the economic and environmental benefits of E-QUIP installations, includinge estimates on the amount of utility bill savings for businesses and families, greenhouse gases avoided, and jobs created that may be attributed to E-QUIP retrofit projects.

Background

A broad coalition of real estate and environmental organizations joins The Real Estate Roundtable in urging the introduction of E-QUIP legislation, which would address the following:

Elective 10-year, straight-line cost recovery period for a new category of E-QUIP expenditures for taxable income, as well as for earnings and profits purposes;
E-QUIP benefit available to all taxpayers, including an electing real property trade or business that fully deducts interest expenses under section 163(j);
Applies to improvements in commercial buildings and multifamily buildings;
Covers interior and exterior components of, and controls for, the main systems that most impact building energy consumption: (1) heating and cooling; (2) lighting; and (3) envelope;
Pertains to equipment and systems manufactured to meet above-code, high performance specifications to be subsequently defined by statutory language, that exceed levels of performance ordinarily required through energy codes and standards; and
Certification that E-QUIP is installed to maximize the performance for which it is designed, accompanied by an on-going operations and maintenance plan.

E-QUIP LINKS: