Owners and leaseholders of commercial buildings that are certified to meet certain energy-efficiency standards can qualify for a deduction of up to $1.80 per square foot. Before making any financial or tax moves, consult with your CFP and CPA for guidance or contact SourceCorp Professional Services for an initial Energy Efficient Commercial Building Tax Deduction Analysis.
Energy-Efficient Commercial Building Property Deduction Extended
A deduction is allowed in an amount equal to the cost of “energy-efficient commercial building property” placed in service during the tax year. The maximum deduction for any building for any tax year is the excess of the product of $1.80, and the square footage of the building, over the aggregate amount of the deduction for the building for all earlier tax years (per Section 179D). This provision is available for systems “placed in service” from January 1, 2006 through December 31, 2013. Commercial property owners will have more time under this extension to install items, such as energy-efficient lighting and other energy-efficient retrofits to take advantage of this federal tax incentive.
As defined in the Tax Code, “energy efficient commercial building property” is property: (a) with respect to which depreciation (or amortization) is allowable; (b) installed in a building located in the United States and within the scope of Standard 90.1-2001 of American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America; and (c) installed as part of the interior lighting systems, heating, cooling, ventilation and hot water systems, or as part of the building envelope. Further, the installed interior lighting, heating, cooling, ventilation, hot water systems and building envelope must either reduce the total annual energy and power costs by fifty percent (50%) or more, or be part of a taxpayer’s overall plan, which includes the subsequent installation of the same, and which will reduce the total annual energy and power costs by fifty percent (50%) or more, as compared with a “Reference Building,” which is compliant with the minimum requirements of Standard 90.1-2001. For taxpayers meeting this threshold, the maximum deduction available to them is $1.80 per square foot, less the aggregate amount of the Section 179D deductions allowed with respect to the building for all prior taxable years.
Section 179D also provides for a partially qualifying commercial property deduction, which applies to property that would otherwise qualify as energy-efficient commercial building property but results in reductions in the total annual energy and power costs of less than fifty percent (50%) but greater than or equal to sixteen and two-thirds percent (16.66%). For taxpayers meeting this threshold, the maximum deduction available to them is $0.60 per square foot, less the aggregate amount of the Section 179D deductions allowed with respect to the building for all prior taxable years. Section 179D also provides interim guidelines encouraging and providing a deduction for improvements made to lighting systems.
