“Tax Policy & Commercial Construction”
How what’s happening in D.C. can impact your business by Craig Brightup
Congress and the White House must resolve a number of major items before the end of the year, including funding the federal government for FY 2016. Big issues like these can cause a logjam in the House and Senate, but there’s a good chance Congress will pass a tax extenders bill before Dec. 31, 2015.
On July 21, the Senate Finance Committee approved a tax extenders bill that would renew several building tax incentives. There are 55 various credits and deductions that must be renewed each year (called “tax extenders”), and two of the more important ones for commercial construction and renovation are the 15-year depreciation schedule for leasehold improvements, restaurant building and improvements, and retail improvements; and the energy-efficient Commercial Building Tax Deduction (IRC Sec. 179D).
Commercial building components typically have a 39-year depreciation schedule, so the benefits of a 15-year schedule are obvious. The Commercial Building Tax Deduction (CBTD) also has benefits, but requires more explanation.
The CBTD was first enacted in the Energy Policy Act of 2005 and expired at the end of 2014. It provides a building owner with a deduction of up to $1.80 per square foot of floor area for buildings that achieve 50 percent annual energy savings beyond ASHRAE 90.1-2001, and the Finance bill would update that to ASHRAE 90.1-2007.
The deduction was also pro-rated for buildings unable to meet the 50 percent target, providing 60 cents per square foot for each of three subsystems meeting a 16.66 percent energy savings target:
Heating, cooling, ventilation and hot water property
Building envelope property
Subsystem percentages were later modified to 20 percent for lighting, 20 percent for HVAC and 10 percent for envelope property, and then to 25 percent, 15 percent and 10 percent.
Tax extenders expired on Dec. 31, 2014, and the Senate Finance bill would renew the 15-year depreciation schedule and CBTD retroactively for 2015 – 2016. The package is now in the House Ways and Means Committee where Chairman Ryan (R-WI) has been working to make several extenders permanent, such as the research and development tax credit.
It is also possible that Ryan might try to tie international tax reform, a highway bill and tax extenders into one big package that Congress would enact at the end of 2015.
Craig Brightup is CEO of The Brightup Group