Energy-Efficiency Tax Benefits for Commercial Buildings: What You Need to Know in 2009 and Beyond

HPAC Engineering, “a forum for peer-to-peer communication among engineering professionals in the buildings and construction industries” (as self-described on their “About” page), provides a very — as in, extremely — useful summary of the federal tax breaks that are available for commercial buildings that meet necessary energy-efficiency guidelines. It’s written by Matt Rader of SourceCorp in Fort Worth, Texas.

The upshot is that when President Bush signed into law the Emergency Economic Stabilization Act of 2008 last October 3rd, this extended the tax-deduction benefits of the Energy Policy Act of 2005 all the way to 2013. And lest we forget, these benefits, as stated in Section 1331 of the Act and paraphrased by Mr. Rader, include major breaks for energy efficiency in commercial buildings “for expenditures related to interior-lighting, HVAC, and hot-water systems and building envelopes..” Rader draws out for us the importance of this fact: “This opportunity potentially allows for the immediate expensing of costs that otherwise would be capitalized and recovered through depreciation over 27½ to 39 years.”

Most of us probably recall when President Bush first signed the Energy Policy Act of 2005 (in August of that year). Section 1331’s provisions are summarized for us by the Federal Energy Management Program in their comprehensive summary of the Act as a whole:

Section 1331 makes provisions for a tax deduction of $1.80 per square foot on new construction after Dec. 31, 2005 if annual energy and power costs of interior lighting systems, heating, cooling, ventilation, and hot water systems are 50% or more below ASHRAE Standard 90.1-2001. The treasury will issue regulations to allocate the deduction to the primary designer of a Federal, State, or local government commercial property.

What Mr. Rader and HPAC do is to provide us with a nice, clear, easy-to-understand overview of what this all means in actual practice, including what the tax deductions actually are, what certification requirements must be met in order to qualify for them, who can actually benefit from the deductions, and what exactly can be written off. This includes some stuff you really should make sure you know before deciding that you’re already educated about this, as in the following:

If an entire building does not qualify for the $1.80-per-square-foot deduction, partial allowances may be made for individual systems. If within the scope of Standard 90.1-2001, HVAC and hot-water systems and building envelopes may qualify for deductions of up to 60 cents per square foot. However, building owners are encouraged to focus on lighting systems first because they are easily available to upgrade and their potential energy-efficiency achievements are known. Owners may receive a deduction of 30 cents per square foot for reductions in lighting-power density of 25 percent of the minimum requirements in tables 9.3.1.1 or 9.3.1.2 of Standard 90.1-2001 and 60 cents per square foot for reductions in lighting-power density greater than 40 percent. Prorated partial deductions may be permitted for reductions in lighting-power density between 25 and 40 percent.

As always, it pays (often literally!) to keep current with all of this — especially since we now have a new President who enters the office with his own energy-related goals already in mind. On January 22, as reported by Reuters (“Lawmakers okay energy tax breaks in Obama plan“), the House Ways and Means Committee “approved $20 billion in energy tax credits and related financial incentives that are part of the Obama administration’s plan to revive the American economy.” The tax breaks are aimed at the renewable energy industries, residential dwellings, and fueling stations, but we should all keep our eyes and ears open in the expectation that developments more directly related to commercial buildings may be forthcoming.