What does the new climate bill mean for your commercial building?

Historically, many commercial property owners have only invested in energy retrofits that carry a short payback and/or those that are heavily incentivized by utilities. While the Clean Buildings Act (HB1257) and C-PACER Financing encourage deeper retrofits in Washington, the entire country just received reason to re-think their approach. The Inflation Reduction Act, which was signed by President Biden on August 16^th, will be implemented for ten years and will reap immense benefits for commercial property owners.

This big change includes an increase in the current 179D deduction for new and existing commercial buildings. This extension and increase have been an ask of the commercial property industry for years, and industry associations like BOMA have committed significant legislative advocacy efforts toward making it a reality. The Inflation Reduction Act converts the existing $1.80 per square foot to a sliding scale of $2.50 to $5 per square foot depending on the performance of energy systems. This sliding scale varies between $2.50 for a 25% reduction and $5 for a 50% reduction. This means that the tax deduction for a 20,000 sq. ft. building would increase from $36,000 to $50,000-$100,000, based on their percentage of energy efficiency improvement. That is a $14,000 to $64,000 increase in tax deduction compared to what they would have received in previous years!

Existing buildings five years or older have the same scale of $2.50 to $5 deduction per square foot and would need to improve their existing energy use between 25%-50% to benefit like newer commercial buildings. Those small changes help commercial buildings save money and reduce their environmental impact.