On June 2, the Internal Revenue Service issued a “guidance” document that gives additional detail on how commercial building owners can qualify for the federal tax deduction for energy efficiency in commercial buildings under the Energy Policy Act of 2005 (EPAct 2005).

The document establishes a process to certify the required energy savings in order to claim the deduction, and sets targets for partial deductions for designated building elements or systems. Building owners now have sufficient information to begin submitting claims.

EPAct 2005 enables taxpayers to deduct the cost of energy-efficient equipment and improvements in commercial buildings.

The deductible amount may be as much as $1.80 per square foot for buildings that achieve 50-percent savings in regulated energy (measured by annual energy cost) compared to ASHRAE 90.1-2001.

In addition, the requirements for achieving partial deductions are detailed in the guidance document.

Buildings below the 50-percent threshold may qualify for a deduction of up to 60 cents per square foot by meeting a 16 2/3-percent energy cost savings target for hot water, HVAC or lighting systems, compared with a reference building.

Buildings that increase the efficiency of their lighting can also qualify for a partial deduction under “interim guidance,” which lists a number of other criteria.

All energy savings must be certified by qualified individuals in order to receive the deduction.

Certification can be obtained from a licensed engineer or contractor, and must employ software endorsed by the U.S. Department of Energy.

DOE will create and maintain a public list of software that must be used to calculate energy savings for purposes of providing the certification.

It also provides a process that software developers must use if they would like to have their software included on the list.

The tax deductions will be available for buildings that are placed in service by Dec. 21, 2007, although there is movement in Congress to extend EPAct 2005 for an additional three years.

For the full text of the EPACT commercial building tax deduction, the recent guidance and other reference documents, visit the CEE Web site.

[ back to top ]