The most promising for the owners and tenants in commercial buildings is a TAX DEDUCTION OF UP TO $1.80 PER SQUARE FOOT when the properties are made more energy efficient.

The Tax Relief and Health Care Act of 2006 has extended the tax deductions through 2008. Property and/or improvements placed in service between January 1, 2006 and December 21, 2008 qualify for the deduction.

The energy efficient commercial buildings EECB deduction is available for most multifamily residential buildings of four or more stories and commercial buildings. The deduction goes to the party (tenant or owner) that bears the expense of the improvements.

To qualify for the EECB deduction you will need a certification from a licensed engineer or contractor stating that the improvements are part of a plan designed to reduce annual energy and power costs by at least 50% in comparison to a “reference building.” A reference building is a similar building that is located in the same climate zone and meets the minimum requirements of ASHRAE/IESNA Standard 90.1-2001.

The IRS has provided guidance on the deduction in Notice 2006-52 such as the guidelines regarding:
• The content of the certification;
• The required qualifications of the certifying engineer or contractor;
• Approved software products for calculating energy and power consumption and related costs. The list can be found at www.eere.energy.gov/buildings/tools_directory

The items of energy savings is based upon heating, cooling, ventilation, water heating and interior lighting systems.

The Energy Policy Act also authorizes a partial deduction of up to 60cents per square foot for improvements to any one of the listed systems that meet energy savings targets established by IRS. Notice 2006-52 allows the partial deduction for improvements that reduce total energy use by at least 16.667% (one-third of the 50% target for the full deduction).

In addition, there is an alternative interim target for interior lighting systems when upgrades reduce lighting power by specified amounts and meet other requirements you may qualify for deductions between 30cents and 60cents per square foot.

To determine if your property qualifies you will need to assess the energy performance of an existing or planned building. The government’s ENERGY STAR program (www.energystar.gov/benchmark) provides free tools to make an initial assessment.

The deduction is limited to the actual cost of EECB property, up to the applicable cap ($1.80 per square foot for the full deduction). Costs in excess of the cap are depreciated over 39 years for a commercial building and 27.5 years for a residential building.

If you plan to upgrade your buildings and want to take advantage of this incentive you need to start planning now without delay since the program expires on December 31, 2008!

Call us if you have questions or need assistance.