WASHINGTON, D.C.—On October 3, 2008, President Bush signed into law H.R. 1424 and extended the Energy Efficient Commercial Building Tax Deduction as part of the Emergency Economic Stabilization Act of 2008. The tax deduction is not a tax credit (an amount directly subtracted from the tax owed), but a deduction—an amount subtracted from gross taxable income. Tax deductions result in benefits to the taxpayer; thus this newly created program can be used as an incentive to assist in choosing energy efficient building systems.
The Energy Policy Act of 2005 included a new tax incentive to improve the energy efficiency of commercial buildings. The “Commercial Building Tax Deduction” establishes a tax deduction of up to $1.80 per square foot for owners or tenants (or designers, in the case of government-owned buildings) of new or existing commercial buildings that are constructed or reconstructed to save at least 50 percent of the heating, cooling, ventilation, water heating, and interior lighting energy costs of a building that meets ASHRAE Standard 90.1-2001.
Only buildings covered by the scope of ASHRAE Standard 90.1-2001 are eligible. Partial deductions of $.60 per square foot can be taken for improvements to one of three building systems—the building envelope, lighting, or heating and cooling system—that reduces total heating, cooling, ventilation, water heating and interior lighting energy use by 16 2/3 percent (16 2/3 percent is the 50 percent goal for the three systems spread equally over the three systems).
Tax Deduction Amount
The deduction is limited to an amount equal to $1.80 per square foot of the property for which such expenditures are made. Qualifying building criteria include:
• The building must be located in the United States;
• Installed on or in any building located in the United States that is within the scope of Standard 90.1-2001, Energy Standard for Buildings Except Low-Rise Residential Buildings, of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America;
• Installed as part of (i) the interior lighting systems, (ii) the heating, cooling, ventilation, and hot water systems, or (iii) the building envelope;
• Certified as being installed as part of a plan designed to reduce the total annual energy and power costs of interior lighting systems, heating, cooling, ventilation, and hot water systems of the building by 50 percent or more when compared to a reference building, which meets the minimum requirements of Standard 90.1-2001 (as in effect on April 2, 2003).
Certification Requirement
IRS Notice 2006-52 requires inspectors to be engineers or contractors licensed in the jurisdictions where the building is sited. Inspections must meet guidelines of the National Renewable Engineering Laboratory.
The provision is effective for property placed in service after December 31, 2005, and prior to December 31, 2013.
To learn more about the Energy Efficient Commercial Building Tax Deduction, go to: www.sourcecorptax.com.
