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Federal Tax Deduction for Energy Efficiency Improvements for Commercial Buildings

Background

The federal Energy Policy Act of 2005 established a tax deduction for energy-efficient commercial buildings applicable to qualifying systems and buildings placed in service from January 1, 2006, through December 31, 2007. This deduction was subsequently extended through 2008, and then again through 2013 by Section 303 of the federal Energy Improvement and Extension Act of 2008 (H.R. 1424, Division B), enacted in October 2008.

Read Internal Revenue Code here.

Tax Deduction Description

A tax deduction of $1.80 per square foot is available to owners of new or existing buildings who install (1) interior lighting; (2) building envelope, or (3) heating, cooling, ventilation, or hot water systems that reduce the building’s total energy and power cost by 50% or more in comparison to a building meeting minimum requirements set by ASHRAE Standard 90.1-2001. Energy savings must be calculated using qualified computer software approved by the IRS.

Deductions of $0.60 per square foot are available to owners of buildings in which individual lighting, building envelope, or heating and cooling systems meet target levels that would reasonably contribute to an overall building savings of 50% if additional systems were installed.

The deductions are available primarily to building owners, although tenants may be eligible if they make construction expenditures. In the case of energy efficient systems installed on or in government property, tax deductions will be given to the person primarily responsible for the systems’ design. Deductions are taken in the year when construction is completed.

Eligible efficiency technologies:

1. Equipment Insulation
2. Water Heaters
3. Lighting
4. Lighting Controls/Sensors
5. Chillers
6. Furnace
7. Heap-Pumps
8. Air Conditioners
9. Caulking/Weather-stripping
10. Duct/Air sealing
11. Building Insulation
12. Windows
13. Doors
14. Siding
15. Roofs
16. Comprehensive Whole Building Measures

IRS Guidance

IRS Notice 2006-52 (6/2006) Interim Guidance

IRS Notice 2008-40 (3/2008) Further Clarification

NREL Report NREL/TP-550-40228(2/2007) Guidelines for Modeling and Inspection

List of qualified computer software for calculating commercial building energy and power cost savings

Commercial Building Tax Deduction Coalition Frequency Asked Questions