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Tax Deduction Overview

EPAct 2005 provides a tax deduction, limited to an amount up to $1.80/sq.ft for exceeding ASHRAE/IESNA 90.1-2001 by up to 50%, to the property for which the energy efficient expenditures are made as part of new construction or renovations.

  • Deduction is limited to the capitalized energy efficiency investment for the year in which the energy efficient investment is made
  • The provision is effective for property placed in service after December 31, 2005 and prior to December 31, 2013.
  • Deduction can be allocated to design firms for energy-efficient commercial building property expenditures made by a public entity, such as public schools, hospitals or government offices
  • Alternate system-specific deductions are available for three building sub-systems – each up to $0.60/sq.ft: interior lighting; HVAC; building envelope

Commercial Building Tax Deduction
Interior Lighting Tax Deduction: Lighting energy consumption is estimated to represent approximately 1/3rd of commercial building energy use. As a result, lighting is recognized as a qualified energy savings system that is eligible for a partial tax deduction up to $0.60/sq.ft and not exceeding the costs incurred for the energy efficient interior lighting system.

Interim rules for a lighting specific deduction:

  • Outperform the ASHRAE/IESNA Standard 90.1-2001 lighting requirements by 25-40% . Eligible tax deduction per sq.ft will be between $0.30-$0.60.
  • Warehouses must outperform the ASHRAE/IESNA Standard 90.1-2001 lighting requirements by 50% to qualify for the full $0.60/sq.ft deduction.
  • All control requirements in the Standard 90.1-2001 must be met, automatic shutoff for buildings greater than 5000 sq.ft and bi-level switching must be installed
  • All existing building codes and product regulations must be met
  • IESNA Lighting Handbook, 9th Edition minimum requirements for calculated lighting levels must be met.
  • This tax deduction is generally given to the individual/organization that makes the investment (typically the owner). However, for government buildings, the tax deduction may be taken by the designer

These EPAct Summary Pages are meant to provide a general overview of the tax provisions of the Energy Policy Act 2005. Please contact your tax advisor to determine the specific tax treatment appropriate for your company.

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