IRS clarifies deduction process for energy saving commercial buildings

August 11, 2010

On June 2, The Internal Revenue Service issued an advance copy of a notice on how commercial building owners or leaseholders can qualify for a tax deduction for making their buildings energy efficient. The notice establishes a process to certify the required energy savings in order to claim the deduction. The commercial building deduction, which was enacted in the Energy Policy Act of 2005, allows taxpayers to deduct the cost of energy-efficient property installed in commercial buildings.

The amount deductible may be as much as $1.80 per square foot of building floor area for buildings that achieve a 50% energy savings target. The notice provides that buildings below the 50% threshold may, nevertheless, qualify for a deduction of up to 60 cents per sf of building floor area if they meet a 16¨ø-% energy savings target.

Before claiming the deduction, the taxpayer must obtain a certification that the required energy savings will be achieved. The notice also announces that the Department of Energy will create and maintain a public list of software that must be used to calculate energy savings for purposes of providing the certification.

More information on the IRS notice: http://www.irs.gov/pub/irs-drop/n-06-52.pdf

         
 

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