The Energy Policy Act of 2005 is starting to draw more attention due to the extension of certain tax incentives through the year 2013.  For commercial buildings, The Energy Policy Act of 2005 allows for an immediate tax deduction of up to $1.80 per square foot for energy-efficient features of the building’s construction or retrofit under IRC §179D.  Commercial buildings also include multi-family residential buildings with more than three stories. For instances where a non-taxpaying entity, such as the government or a municipality owns the building, The Energy Policy Act of 2005 allows for the primary designer, typically the architects and engineers, to claim the deductions.  If the market downturn is a factor in current year profitability, this may still be beneficial due to the ability for certain small businesses to carry back net operating losses up to five years, thus, creating immediate cash benefits.

To claim a tax deduction under The Energy Policy Act of 2005, there are three different areas that qualify for a tax deduction of up to $.60 per square foot for each area.  These areas include interior lighting systems, HVAC, and the building envelope.  The building envelope is defined as the perimeter of the building including the roof, walls, windows, doors and floor/foundation.  The deductions apply to buildings or systems placed in service or remodeled during calendar years 2006-2013.  To qualify for those deductions, a project – whether an entire building or one of the three subsystems – must cut energy use compared to the limits specified in ASHRAE 90.1-2001.Â
Of the three areas available for these tax incentives, the one that is drawing the most attention is interior lighting systems.  With substantial improvements in recent lighting product efficiency, most products currently available meet the requirements of The Energy Policy Act of 2005.  The incentive for lighting systems can also be taken advantage of without energy modeling, which is required by the two other areas.  Owners of commercial buildings have the opportunity to take advantage of the combination of savings from the energy efficient lighting and the savings from the tax incentives available.   To demonstrate the economic benefit of a commercial building that qualifies for the maximum deduction for lighting systems, a 100,000 square foot building will generate an immediate federal tax deduction of $60,000 and in most states an additional $60,000 state deduction. 

In order to qualify for these deductions for commercial buildings a certification must be obtained by an engineer or contractor that is properly licensed as a professional engineer or contractor in the jurisdiction in which the building is located.  Dean Dorton Ford has the resources available to provide you with this certification and walk you through the cost/benefit analysis of taking advantage of these tax incentives.Â
Along with these incentives, an additional tax incentive that is set to expire at the end of the year allows for eligible contractors that construct new energy-efficient homes to claim a $2,000 tax credit for each home that they sell.  In order to qualify for the $2,000 tax credit for newly constructed energy-efficient homes, contractors must meet certain requirements that will classify these homes as energy-efficient.  The homes must be constructed to consume 50% less energy for heating and cooling than that of a comparable home.  In addition the building envelope must be constructed to consume 10% less energy for heating and cooling than a comparable home.  There is also a reduced credit of $1,000 available for homes that meet certain lower requirements.  These credits are calculated per qualifying home, which can add up to a large tax benefit for a contractor that builds multiple energy-efficient homes.

For further details on the commercial energy tax deductions under The Energy Policy Act of 2005 or the $2,000 tax credit for newly constructed energy-efficient homes, please contact Paula Hanson (phanson@ddfky.com) or Brandi Marcum (bmarcum@ddfky.com) at 859-255-2341.

John Calabrese Â
jcalabrese@ddfky.com