President Obama visited Miami this week to talk about why rising gas prices are yet another painful reminder of why developing new energy sources is so critical to our future. As he said, higher prices at the pump hurt everyone – everyone who owns a car and everyone who owns a business. One way the President said we can help our businesses cope with the rise in energy prices is by working with them to lower their overall energy costs, including by figuring out how our buildings can use less energy.
To that end, the President announced provisions to make it easier for businesses to invest in energy solutions that will make them more energy efficient and competitive. One of those changes was in the guidance for the Section 179D tax deduction. Section 179D allows a deduction for qualified costs incurred for: (1) interior lighting systems, (2) heating, cooling, ventilation, and hot water (HVAC) systems, and (3) the building envelope (exterior walls, windows, etc.). The deduction helps businesses upgrade these systems to lower their energy costs. Businesses unable to achieve the energy savings required for the full deduction may be eligible for a partial deduction by making improvements to a single system. The new guidance modifies the existing energy savings targets for the partial deduction to better align with technological advances in energy efficient lighting, HVAC, and building envelope products. This change will provide a greater incentive for taxpayers to upgrade HVAC systems by decreasing the energy savings required for the HVAC partial deduction from 20 percent to 15 percent.
Additionally, the Department of Energy has developed a simplified approach for measuring the benefits of some energy efficiency upgrades in order to streamline the requirements for claiming a deduction and reduce modeling requirement costs for taxpayers. This web-based tool will be available next month and will serve as a substitute in many circumstances to costly modeling requirements that have burdened the application and compliance process. The tool will be particularly targeted toward small businesses that do not have access to comprehensive modeling tools, and will also help all taxpayers conduct an initial evaluation of potential energy savings for a given project.
While the President was clear that there is no silver bullet to address rising gas prices in the short term, we will continue to take steps like these to enhance energy security and protect consumers and businesses against rising energy prices in the long term.
Natalie Wyeth is Deputy Assistant Secretary of the Treasury for Public Affairs.
