In today’s economy, saving on operating costs has become an essential goal for commercial property owners. Many commercial property owners are looking to integrate sustainability into construction or retrofitting existing properties to save on energy usage and costs. If planned and executed properly, energy efficient construction or modifications can not only save on operating costs, but may result in significant tax savings.
The Energy Policy Act of 2005 - known as §179D - includes a tax deduction for investments in “energy-efficient commercial building property” designed to measurably reduce the heating, cooling, water heating, and interior lighting energy cost of new or existing commercial buildings. This energy-efficient commercial building property must be placed into service between January 1, 2006 and December 31, 2013.
If you are a building owner or a tenant/lessee who has paid for energy efficient construction or improvement projects, you may be eligible for a tax deduction of up to $1.80 per square foot for improving the energy efficiency of your existing commercial building or designing and integrating high efficiency into new buildings. (Interestingly, for government owned buildings, the person primarily responsible for designing the building or project may be able to claim the deduction.)
To qualify for the full deduction (whole building), a commercial property owner/building owner (or tenant) must make investments designed to reduce energy costs by 50% or more compared to an IRS predetermined baseline. Additionally, a partial deduction of $.60 per square foot is provided for building subsystems such as lighting, HVAC, hot water and building envelope. In order to qualify for the deduction, the taxpayer must receive a qualified third party energy efficiency certification.
We are not tax experts, so you are encourage to speak to your tax advisor(s).