Get Green by Going Green 
Energy Policy Act Extends Tax Incentives Through 2013
Building owners may be eligible for a tax deduction of up to $1.80 per square foot for improving the energy efficiency of their existing commercial buildings or designing energy efficiency into new buildings.
The Energy Policy Act of 2005 is a very important tax act for building owners. Real estate investors can now reduce the payback period in investing in energy-efficient components with the added benefit of deducting up to the entire expense of these assets immediately versus depreciating these assets over 39 years.
The Energy Policy Act of 2005 includes a tax deduction for investments in “energy-efficient commercial building property” designed to significantly reduce the heating, cooling, water heating, and interior lighting energy cost of newer existing commercial buildings. To be eligible, the energy-efficient commercial building property—such as a state-of-the-art lighting system—must be placed in service between January 1, 2006 and December 31, 2013.To qualify for the full deduction, a building owner or tenant must make investments designed to reduce energy costs by 50% or more. A partial deduction of $0.60 per square foot is available for investments in one of three systems—lighting; heating and cooling; or building envelope— designed to reduce energy costs by 16 and 2/3% (i.e., one-third of the 50% requirement).
Tax deductions reduce your overall taxable income with the value of the deduction dependent on your tax bracket. Tax credits, such as the ones provided for consumers in the 2005 Energy Policy Act, reduce the amount of tax you owe dollar for dollar.
Who Can Benefit from the Deduction?
The person or organization that pays for construction is generally the recipient of the deduction. This is usually the building owner, but for some HVAC or lighting efficiency projects, it could be the tenant. For government-owned buildings, the person primarily responsible for designing the building or project may be able to claim the deduction.
How Can I Qualify For The Tax Deduction?
There are five alternative ways a building system(s) may qualify. Before a taxpayer may claim the section 179D deduction with respect to property installed on or in a commercial building, the taxpayer must obtain a certification with respect to the property. The certification must be provided by a qualified individual and satisfy the requirements of section 179D(c)(1). The five alternative ways to qualify a building are listed below:
The whole building may qualify for up to $1.80 per square foot; or
- Lighting systems; or
- HVAC/water heating; or
- Building envelope
may each qualify for up to a $0.60 per square foot deduction for their contribution to the 50 percent savings (defined by the Internal Revenue Service as 16 2/3% whole buildings savings); or
Lighting may receive an up to a $0.30 to $0.60 deduction for reductions in lighting power density from ASHRAE 90.1-2001 tabular values of 25 percent to 40 percent respectively, with linear interpolation between 25 and 40 percent.
To learn more or to see if your property qualifies call 1.800.320.0948, extension 703 and ask for a no cost analysis, courtesy of
our partner Engineered Tax Services
Engineered Tax Services, Inc. is a professional licensed engineering firm dedicated to “Green” services
Palm Beach - Boston - Chicago - Manhattan - Phoenix - San Diego- San Francisco - Atlanta - Cleveland - Los Angeles - Miami - Fort Lauderdale - Tampa - Salt Lake
Case Study - Energy Tax Certification
An energy tax certification of a new office complex with energy efficiency assets installed provided a $58,000 179D tax deduction as the 40,000 sq. ft. office building qualified for a $1.45 tax deduction per the Energy Policy Act guidelines. The Cost Segregation Study, in conjunction with the energy study, produced a 33% reclassification of 39 Year depreciation class life assets. The client realized a first year tax benefit of $185,000. The five year cash benefit achieved by recouping the 33% of the building assets over a shorter period of time resulted in a cash benefit of $655,768.
| Asset Class | Asset Life | Original Allocation | Allocation After CSS | Allocation After CSS |
| Energy Tax 179D | 179D Deduction |
$ - |
$ 58,000 | 1.00% |
| Personal Prop. | 5-year. 200% db |
$ - |
$ 1,345,500 | 15.00% |
| Personal Prop. | 7-year. 200% db |
$ - |
$ - | 0.00% |
| Land Improvements | 15-year 150% db |
$ - |
$ 1,552,500 | 17.00% |
| Real Prop. in yrs. | 39 | $ 6,102,000 | 67.00% | |
| Real & Personal Property | $ 9,000,000 | $ 9,000,000 | 100.0% | |
| Total Cost | $ 9,000,000 | $ 9,000,000 | 100.0% | |
Benefit
| Year of Study | Year | Tax Savings from Change in Depreciation |
Discount Factor |
NPV of |
Accumulative NPV |
| 1 | 2007 | $185,000 | 100.00% | $185,000 | $185,000 |
| 2 | 2008 | $216,608 | 95.24% | $206,293 | $391,293 |
| 3 | 2009 | $136,210 | 90.70% | $123,546 | $514,839 |
| 4 | 2010 | $86,068 | 86.38% | $74,349 | $589,188 |
| 5 | 2011 | $80,931 | 82.27% | $66,582 | $655,770 |
Case Study Information Source: Engineered Tax Services
Related IRS Notice § 179D deduction
Cost Segregation Study (2008)
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