Current Tax Proposals
Working with stakeholders across the industry, the Alliance has developed proposals for strengthening and modernizing the Sec. 25C tax credit for homeowner improvements, the 179D tax deduction for commercial buildings, and the 45L tax credit for construction of high-efficiency new homes. All three of the incentives are currently slated to expire at the end of 2020 without legislation, and we are urging Congress to pass these proposals as quickly as possible to get the efficiency sector back on track after devastating job losses due to the pandemic.
STRENGTHEN AND MODERNIZE THE SEC. 25C NONBUSINESS ENERGY PROPERTY CREDIT
The existing 25C incentive encourages homeowner efficiency improvements with a 10% tax credit up to $500 (lifetime cap) for the purchase of energy-efficient equipment or upgrades such as installation and replacement of insulation, duct work, and heating and air conditioning equipment. In its current form, the incentive is not strong enough to stimulate significant demand. We propose to extend and expand this credit in the following ways:
- Extend the 25C credit through at least 2025 under the structure outlined in the broadly supported, bipartisan Home Energy Savings Act (S.2588/H.R.4506).
- For the first two years of enactment, strengthen the incentive by doubling the value of the incentive in the Home Energy Savings Act, from a maximum cap of $1,200 to a maximum of $2,400 (including doubling the maximum incentive to up to 30% of eligible expenses and doubling incentive caps for individual product categories contained in the bill). To see the product category caps outlined in the bill and other details, read a section-by-section of the bill here.
STRENGTHEN AND MODERNIZE THE SEC. 179D ENERGY EFFICIENT COMMERCIAL BUILDING TAX DEDUCTION
The 179D incentive offers a deduction of up to $1.80 per square foot for efficiency improvements to lighting, heating, cooling, and the building envelope. We propose to strengthen the incentive in the following ways:
- Extend the incentive as is through 2023 (up to $1.80 per square foot for improvements achieving savings at least 50% more than the minimum requirements under the 2007 version of ASHRAE Standard 90.1).
Add an alternative pathway for a higher credit of $3.00 per square foot for improvements that exceed a new reference standard that is automatically updated over time. The new reference standard would be updated every few years to reflect the most recent ASHRAE 90.1 commercial building energy code, ensuring that the efficiency performance required to receive the credit keeps pace with technology. Specifically, the update would be implemented two years after the Department of Energy issues a determination that the latest code improves overall efficiency, as called for in statute. To receive the $3.00 deduction, buildings must achieve the following savings:
- For retrofits of existing buildings built before 2007, 20% greater than the minimum requirements of the applicable reference standard.
- For new construction or buildings built in 2007 or later, 30% greater than the minimum requirements of the applicable reference standard.
- Partial credits for lighting, heating and cooling, and envelope work would be maintained.
- Expand the incentive such that nonprofit entities and tribal governments can access it.
A 2017 Regional Economic Models, Inc. study found that strengthening 179D to $3 per square foot with a long-term extension would create almost 77,000 jobs per year while contributing almost $7.4 billion annually in GDP.
STRENGTHEN AND MODERNIZE THE SEC. 45L ENERGY EFFICIENT HOME CREDIT
The 45L credit, also slated to expire at the end of 2020, offers homebuilders a tax credit of up to $2,000 for building a home that meets a certain efficiency performance. To help encourage new construction to meet housing demand with lower energy costs, we propose to expand this incentive through 2022 as outlined in the bipartisan New Home Energy Efficiency Act (S.2595/ H.R.4646), increasing the incentive to $2,500 and gradually modernizing the energy performance required. Additionally, we propose to phase out eligibility based on the 2006 International Energy Conservation Code (IECC) standard starting in 2023, with eligibility in 2023 and beyond only for homes that meet the updated criteria of at least 15% whole-home energy savings compared to homes built to the 2018 International Energy Conservation Code (IECC) standard.
» Download the Alliance Tax Incentive Proposals Factsheet