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The Energy Efficient Commercial Buildings Tax Deduction
The Energy Efficient Commercial Buildings Tax Deduction (CBTD) is a special financial incentive created by the Energy Policy Act of 2005 and designed to reduce the initial cost of investing in energy-efficient lighting and other building systems via an accelerated tax deduction.
This special tax deduction allows building owners (or tenants) to write off the complete cost of upgrading a building’s indoor lighting, HVAC/hot water and building envelope in the year the new equipment is placed in service, capped at $1.80/sq.ft. Alternately, the owner (or tenant) could upgrade one of these three systems to earn the CBTD capped at $0.60/sq.ft. In short, with the CBTD, the cost of new lighting or other building systems can be claimed in a single tax year instead of amortized over a period of years.
The CBTD expiration date has been extended twice, most recently by the Energy Independence Act of 2007 (EISA). With this extension, the CBTD can be claimed for qualifying projects completed before January 1, 2014.
Tax Deduction Question's & Answers
What are the requirements?
Must reduce total annual energy and power costs with respect to the interior lighting, systems, heating, cooling, ventilation and hot water systems by 50%, but partial deductions are allowed; Energy simulation is required to justify the deduction; inspection and testing must be completed by a qualified engineer or contractor registered in the jurisdiction.
How much is the deduction?
- Maximum deduction: $1.80 per square foot = 50% reduction in total annual energy and power costs (compared to a reference building that meets the minimum requirements of ASHRAE Standard 90.1-2001); not to exceed the amount equal to the cost of energy efficient commercial property placed in service during the taxable year
- Partial deduction: $.60 per square foot = 16 2/3% reduction for building envelope, HVAC and service hot water systems and lighting
- Partial deduction (interim lighting): $.30 - .60 per square foot = 25 – 40% reduction in lighting power density (50% in the case of warehouses)
- Commercial buildings (any size)
- Apartments, four or more stories, for lease
- Commercial energy renovations
Who qualifies for the deduction?
- Building owner at the time of building improvements
- Public buildings – the owner may allocate the deduction to the designer (architect, engineer, contractor, environmental consultant or energy services provider) for the taxable year that includes the date on which the property is placed in service
What is the time frame for eligibility?
Project must be completed or renovated after December 31, 2005 but before January 1, 2013.
What is needed from the builder?
- Current full set of architectural plans that includes all specifications
- Energy compliance documents for lighting, HVAC and envelope (Title 24 or IECC)
- EnergyPro File – computer file used to generate T-24 documentation
What do I get from a 179D review?
- FTD certificate package – requires documentation for deduction
- Provide review of existing T-24 or IECC to verify compliance with current code requirements
- Review building lighting, HVAC and envelope systems for Federal Tax Deduction qualification
- Contract for analysis and certification documentation
How do I claim the deduction?
- The deduction is taken on the “Other Deductions” line of the taxpayer’s return
- Tax returns may be amended going back three consecutive tax years