Just before leaving for the holiday recess, Congress passed the only major tax legislation of the year. The bill included extension of several dozen provisions commonly referred to as ‘tax extenders’ such as the commercial buildings energy-efficiency tax deduction, or Section 179D. This tax deduction allows a commercial building owner to reduce their tax liability by improving the energy efficiency of their building such as new HVAC systems, efficient lighting, and improved building envelope. The provision had expired at the end of 2017, however the end of year package retroactively renewed 179D for 2018 and 2019 and prospectively extended it to the end of 2020. There were no changes to the deduction even though several introduced bills, such as the House Democrat’s green tax proposal, included proposed changes that would impact how the credit could be used by non-profit buildings.
Section 179D is a separate provision from Section 179 small business expensing which includes expensing of commercial HVAC equipment and is a permanent part of the tax code, more information on HVAC expensing is available here. The extension of Section 179D and the ability of small businesses to expense the cost of new HVAC equipment provides a unique selling strategy for 2020, an existing non-residential commercial building owner could expense the full cost of new HVAC equipment and take a deduction based on the square footage of the building for the energy efficiency gain. While Congress typically extends Section 179D, in recent years it has been rare to see an extension to a future date, this could be one of the few times we see the provision available before equipment is installed.
In addition to the extension of 179D, Congressional negotiators agreed to a ‘skinny' package of tax changes including some technical corrections to the Tax Cuts and Jobs Act. This package repealed three taxes created through the Affordable Care Act: the ‘Cadillac’ tax, Health Insurance Tax (HIT), and the medical device tax. These taxes have had bipartisan opposition since they were created in 2010, these taxes have been delayed multiple times prior to repeal. Repeal of these taxes will prevent increases in healthcare costs caused by the levies.
Unfortunately, one of the technical corrections that HARDI has been pushing for was not agreed to by negotiators. Qualified Improvement Property is a provision that would allow improvements by all businesses, including new HVAC equipment, to be expensed in the first year, however a drafting error in the Tax Cuts and Jobs Act prevents the provision from being used until a correction is made. Various reports said Congressional Democrats wanted billions in expanded child tax credits and expansion of the Earned Income Tax Credit, Republicans rejected these demands which slowed down the negotiations for an expanded package that could include QIP.
HARDI will continue to push for technical fixes including Qualified Improvement Property in future tax bills.
For questions or more information, contact Alex Ayers at firstname.lastname@example.org.