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Commercial Property Owners and Leaseholders Qualify for Energy Efficiency Tax Deduction

The commercial building deduction appears at new section 179D, which was enacted in the Energy Policy Act of 2005. The provision allows a deduction to a taxpayer who owns, or is a lessee of, a commercial building and installs property as part of the commercial building’s interior lighting systems, heating, cooling, ventilation, and hot water systems, or building envelope.  Certification must be obtained to verify that the property installed satisfies the energy efficiency requirements of section 179D.

Note: These provisions, originally set to expire 12/31/2007, have been extended through 12/31/2008 as set forth in the Tax Relief & Health Care Act of 2006.

Notice 2006-52 (PDF) sets forth interim guidance pending the issuance of regulations that explains how commercial building owners or leaseholders can qualify for a tax deduction.  The Notice establishes a process to certify the required energy savings in order to claim the deduction.

The amount deductible under section 179D may be as much as $1.80 per square foot of building floor area for buildings that achieve a 50-percent reduction in energy and power costs.  Notice 2006-52 provides that buildings that achieve a reduction in energy and power costs of less than 50-percent may, nevertheless, qualify for a deduction of 60 cents per square foot of building floor area if the building achieves a reduction in energy and power costs of 16⅔-percent.

Before claiming the deduction, the taxpayer must obtain a certification that the required energy savings will be achieved.  Refer to the attached notice which prescribes the content of that certification and the qualifications that must be met by the person providing the certification.

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.  The notice provides a process that software developers must use if they desire to have their software included on that list.

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Page Last Reviewed or Updated: 04-Aug-2014