The Senate Finance Committee on Wednesday advanced an improved energy efficiency tax deduction for commercial buildings (Section 179D) that would make the incentive more usable for “retrofits” of older buildings, multifamily structures, and REITs. (Clean Energy for America Act (S. 1298), mark-up video and supporting documents)
Section 179D & CRE
- The modified bill introduced by Chairman Ron Wyden (D-OR), above, included amendments originally proposed by Sen. Ben Cardin (D-MD) to improve Section 179D. Overall, the bill would replace a patchwork of more than 40 energy tax policies with incentives for commercial and residential energy efficiency, clean electricity, and clean transportation fuels, and eliminate fossil fuel subsidies.
- The Section 179D enhancements would allow:
- A retrofit project tax deduction for efficiency investments that lower an existing building’s energy consumption from a “pre-retrofit” baseline measured through EPA’s Portfolio Manager benchmarking tool;
- All multifamily buildings to qualify for the Section 179D incentive;
- REITs to benefit from the incentive by allowing the amount of the 179D tax deduction to reduce earnings and profits (“E&P”) in the year that energy efficient equipment is placed in service.
- The legislation also includes new rules requiring that taxpayers claiming Section 179D or other tax benefits in the bill comply with the Department of Labor’s prevailing wage standards and use qualified apprentices for at least 15 percent of the labor hours associated with any construction, alteration, or repair work on the project.
Davis-Bacon Prevailing Wage Concerns
- The Roundtable's letter opposed new prevailing wage mandates proposed by the bill. The Roundtable warned that the excessive costs from Davis-Bacon compliance will greatly exceed the amount of any tax deduction that Section 179D might provide to incentivize an energy efficient construction project.
- “Davis-Bacon has never been applied simply because the Internal Revenue Code provides a deduction to lower a private entity’s taxable income,” the letter stated. “The Roundtable recommends that the Clean Energy for America Act avoid unchartered territory that would transform the Internal Revenue Code into a ‘Davis-Bacon Related Act.’”
- Committee Ranking Member Mike Crapo (R-ID), above, said, “I cannot support attaching labor requirements to energy tax policy. Linking labor policy to energy-related tax credits is unprecedented, and I have concerns not only about the policy, but also about the dangerous precedent it sets for amending the tax code.”
- After the committee voted 14-14 along party lines to advance the $260 billion energy tax bill, Chairman Wyden said he would place the bill on the Senate calendar. (CQ, May 26).
- The bill’s prospects in the full Senate are uncertain, yet specific elements within the bill could be incorporated into a larger economic package proposed by President Biden. Wyden has not said whether he will work to roll the measure into the president’s infrastructure plans. (BGov, May 26)
Energy and tax policies affecting commercial real estate will be a focus of discussions during The Roundtable’s June 15 all-member Annual Meeting – and during its June 16 Tax Policy Advisory Committee (TPAC) and Sustainability Policy Advisory Committee (SPAC) Meetings.
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