Posted April 11, 2016 at 07:17 PM
How will the change in ASHRAE standards impact Section 179D?
The Energy Policy Act of 2005 created a tax incentive that relates to the design and installation of energy efficient interior lighting, HVAC and hot water, and/or building envelope systems of commercial buildings. This incentive is for taxpayer building owners or designers of governmental buildings and ranges from $0.30 per square foot on up to $1.80 per square foot for eligible projects.
The Protecting Americans from Tax Hikes (“PATH”) Act of 2015 retroactively extended the Section 179D energy efficient commercial buildings deduction to the end of 2016. In doing so, an important change was made. Beginning in 2016, the energy standards are increased. The American Society of Heating, Refrigerating, and Air-Conditioning Engineers (“ASHRAE”) standard baseline will now be ASHRAE 90.1-2007 replacing the original ASHRAE 90.1-2001. Buildings placed in service in 2015 can still be modeled using ASHRAE 90.1-2001.
The biggest impact of this change will be to the Interim Lighting Rule which allows taxpayers to isolate the energy savings that lighting contributes to the overall building energy consumption. Provided the building has bi-level switching, the threshold to achieve $0.30/sf is 25% with a sliding scale up to $0.60/sf for energy savings over 40%. The Interim Lighting Rule is by far the most common form of this deduction and can be applied to much smaller buildings as the energy modeling requirement is not required.
As lighting technology has advanced dramatically over the last couple decades it was fairly easy for a project to qualify against the 2001 standards. Advanta just completed an assignment for an office building by using the building area method to calculate the Watts per square foot the taxpayer easily garnered the full $0.60 per square foot deduction. By applying the new ASHRAE 90.1-2007 standards to that same office building in 2016 it would only qualify for a $0.42 per square foot deduction. This change will be even tougher on warehouse facilities as the threshold that must be achieved is greater than 50% energy savings on that type of building.