June 23, 2008
Author: Bob Mapes
Organization: Rea & Associates, Inc.
On August 8, 2005, President Bush signed H.R. 6, The Energy Policy Act of 2005 into law. This legislation created a new tax incentive for constructing energy efficient commercial buildings. This deduction is only applicable to building systems installed before January 1, 2009, so it is important to take advantage of this deduction before its expiration.
Specifically, Section 1331, the Commercial Building Tax Deduction, establishes a tax deduction for expenses related to the design and installation of energy-efficient commercial building systems. Tax deductions result in benefits to the taxpayer; thus this newly created program can be used as an incentive to choose energy efficient building systems.
Â§ 179D Certification and Property Analysis:
Before a taxpayer may claim the deduction with respect to property installed on or in a commercial building, the taxpayer must obtain a certification. The certification must be provided by an engineer or contractor that is properly licensed as in the jurisdiction in which the building is located and satisfy the requirements.
To qualify for the deduction, energy-efficient equipment must be installed as part of your commercial building's interior lighting systems, the heating, cooling, ventilation, or hot water systems, or the building envelope. Energy efficient commercial building property is equipment that reduces annual total energy and power costs by 50 percent or more compared to a reference building that meets the minimum requirements of American National Standards Institute Standard 90.1-2001. The deduction may not exceed the excess of the product of $1.80 and the square footage of your building, or the aggregate amount of the energy efficient commercial building deductions allowed with that building in all prior tax years.
If you would like additional information on this guidance or about the energy efficient commercial building deduction in general, please contact your Rea advisor today.