SECTION 2. BACKGROUND

Section 1331, Title XIII of the Energy Policy Act of 2005, Pub. L. No. 109–58, 119 Stat. 594 (Aug. 8, 2005), enacted § 179D of the Code, which provides a deduction with respect to energy efficient commercial buildings. As originally enacted, § 179D applied to property placed in service after January 1, 2006 and before January 1, 2008. Section 204, Div. A, Title II of the Tax Relief and Health Care Act of 2006, Pub. L. No. 109–432, 120 Stat. 2922 (Dec. 20, 2006), extended the § 179D deduction to apply to property placed in service before January 1, 2009. Section 303, Div. B, Title III of the Emergency Economic Stabilization Act of 2008, Pub. L. No. 110–343, 122 Stat. 3845 (October 8, 2008), further extended the § 179D deduction to apply to property placed in service before January 1, 2014.

Section 179D(a) allows a deduction to a taxpayer for part or all of the cost of energy efficient commercial building property that the taxpayer places in service. Section 179D(c)(1) defines “energy efficient commercial building property” as depreciable property that satisfies each of the following conditions: (1) the property is installed on or in any building that is located in the United States and is within the scope of Standard 90.1–2001; (2) the property is installed as part of the interior lighting systems; the heating, cooling, ventilation, and hot water systems; or the building envelope; and (3) it is certified that the interior lighting systems, heating, cooling, ventilation, and hot water systems, and the building envelope that have been incorporated into the building, or that the taxpayer plans to incorporate into the building subsequent to the installation of such property, will reduce the total annual energy and power costs with respect to the combined usage of the building’s heating, cooling, ventilation, hot water, and interior lighting systems by 50 percent or more as compared to a Reference Building that

meets the minimum requirements of Standard 90.1–2001.

Section 179D(b) provides that the maximum amount of the § 179D deduction shall not exceed the excess (if any) of (i) the product of $1.80 and the square footage of the building, over (ii) the aggregate amount of the § 179D deductions allowed with respect to the building for all prior taxable years.

In the event that the installation of energy efficient commercial building property does not achieve the 50-percent reduction in total annual energy and power costs required by § 179D(c)(1)(D), § 179D(d)(1) provides for a partial deduction, in an amount not to exceed the product of $0.60 and the square footage of the building, for each system that satisfies the requirements § 179D(d)(1) (the permanent rule). While the taxpayer may claim a partial § 179D deduction for each system, the taxpayer may not claim partial deductions that in total exceed the overall limitation of (i) the product of $1.80 and the square footage of the building, over (ii) the aggregate amount of the § 179D deductions allowed with respect to the building for all prior taxable years.

Section 179D(f) provides an interim lighting rule, which is an alternate method of calculating a partial deduction for interior lighting systems. This rule provides a partial deduction for part or all of the cost of certain energy efficient commercial building property installed as part of a lighting system that reduces the lighting power density of the building by more than 25 percent (50 percent in the case of a warehouse).