With everything going on with the pandemic in late 2020 and early 2021, few in the lighting industry noticed a major change to the Energy Efficient Commercial Buildings Tax Deduction, aka Section 179D. The Consolidated Appropriations Act, 2021 made the Energy Efficient Commercial Buildings Deduction a permanent part of the Internal Revenue Code while also raising the bar on energy efficiency standards. Section 179D deductions are now indexed for inflation for taxable years beginning after 2020. Baseline standards were raised to the most recently published ASHRAE standards.

Section 179D previously applied to structures placed in service after 2005 and before January 1, 2021. However, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 — part of the Consolidated Appropriations Act, 2021 (CAA 2021) that was signed into law December 27, 2020 — made the Energy Efficient Commercial Buildings Deduction permanent and materially altered certain Section 179D provisions.

The CAA 2021 inserted a provision that provides an inflation adjustment for this deduction for years after 2020. This adjustment uses the C-CPI-U (Chained Consumer Price Index for All Urban Consumers), with the base year of 2019. Adjustments of the $0.60 or $1.80 per square foot deduction are rounded to the nearest cent.

The legislation also updated the baseline standards in an effort to encourage building owners and designers to enhance the energy efficiency of buildings. Previously, ASHRAE Standard 90.1-2007 was used as the benchmark to test the energy efficiency of the buildings or the sub-components of the building. Now, Section 179D(c) is amended to use ASHRAE “Reference Standard 90.1,” which is defined as the most recent Standard 90.1 published by ASHRAE and the Illuminating Engineering Society of North America. This standard must have been affirmed by the Secretary of the Treasury (after consultation with the Secretary of Energy) no later than two years before the date that construction of such property begins.

This provision permits the ASHRAE standards to update without requiring further legislation. However, the aforementioned two-year provision can help to avoid unexpected changes during the construction, design, and planning process, as the reference standard cannot be more recent than the standard from two years prior to the beginning of construction of the subject building.

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