Energy-efficient commercial buildings tax deduction
The energy-efficient commercial buildings tax deductions are valid for improvements placed in service on or before Dec. 31, 2013. This law allows taxpayers to deduct the cost of some energy-efficient property installed in commercial buildings and to deduct more if they implement “whole-building” energy-efficiency projects. Building types and items that qualify include:
• New buildings that do not rely on renewable energy
• Multifamily residential buildings with more than three stories above grade
• New portions of buildings and their systems
• New systems and equipment in existing buildings
To be eligible for a tax deduction of up to $1.80 per square foot (ft2), energy-efficient whole-building renovations must reduce total annual energy use by at least 50 percent compared to a similar building satisfying ASHRAE 90.1-2001. A partial tax deduction up to $0.60/ft2 can be taken for efficiency improvements in any of three areas of lighting, HVAC and building envelope if installed measures meet a specified energy savings target. Energy savings must be measured and certified by qualified personnel using approved modeling software; these software options are available from the U.S. Department of Energy (DOE) at www.eere.energy.gov/buildings/qualified_software.html.
Renewable-energy tax credits and grants
Businesses that install renewable-energy property are eligible for federal tax relief in the form of the business energy investment tax credit (ITC). ARRA 2009 extends and expands some existing tax credits and also establishes new credits for other renewable technologies.
• The tax credit can be up to 30 percent of the investment in solar, fuel cells and small wind, with no cap on the dollar amount of the credit.
• Geothermal, microturbines and combined heat and power (CHP) qualify for an investment tax credit of 10 percent; geothermal has no dollar cap, but microturbines and CHP have implicit caps related to their generating capacity.
• The renewable-energy system must be installed by the building owner, or its original use must begin with the building owner. The energy property must be operational in the year in which the credit is first taken.
• The equipment must also meet any performance and quality standards that are in effect when the equipment is purchased; the Tax Incentives Assistance Project’s (TIAP’s) business incentives pages discuss what counts as qualifying equipment (www.energytaxincentives.org/business).
• In general, credits are available for eligible systems placed in service on or before Dec. 31, 2016; however, there is no stated time limit on credits for geothermal. Solar energy property credits do not expire but instead revert to 10 percent after Dec. 31, 2016.
• ARRA 2009 allows businesses to take the renewable-energy tax incentive as a grant instead of a credit, recognizing that some businesses without tax liability may not be able to benefit from the credit. The credit offsets taxes on income on a dollar-for-dollar basis. Grant guidance and application information will be available by summer 2009 at the U.S. Treasury Web site (www.treas.gov/recovery).
Qualifying advanced energy project investment tax credit
This investment tax credit applies to companies that manufacture products for advanced energy production.
• ARRA 2009 established a new 30 percent investment tax credit for facilities involved in the manufacture of “advanced energy property.”
• This property can include technology for the production of renewable energy, efficient energy transmission and energy conservation, energy storage, and carbon capture and sequestration.
• Qualifying property can include any component of an advanced energy system, including software.
• Qualifying facilities must be certified by the Secretary of the Treasury, in consultation with the DOE, through a competitive bidding process.
• Any business receiving this credit may not receive the business energy ITC.
Don’t forget—your energy savings add up over time and will outstrip the one-time benefit you receive in tax incentives!