The Energy Efficient Commercial Buildings Tax Deduction
The Energy Efficient Commercial Buildings Tax Deduction (CBTD) is a special financial incentive created by the Energy Policy Act of 2005 and designed to reduce the initial cost of investing in energy-efficient lighting and other building systems via an accelerated tax deduction.
This special tax deduction allows building owners (or tenants) to write off the complete cost of upgrading a building’s indoor lighting, HVAC/hot water and building envelope in the year the new equipment is placed in service, capped at $1.80/sq.ft. Alternately, the owner (or tenant) could upgrade one of these three systems to earn the CBTD capped at $0.60/sq.ft. In short, with the CBTD, the cost of new lighting or other building systems can be claimed in a single tax year instead of amortized over a period of years.
The CBTD expiration date has been extended twice, most recently by the Energy Independence Act of 2007 (EISA). With this extension, the CBTD can be claimed for qualifying projects completed before January 1, 2014.
Tax Deduction Versus Tax Credit
A tax deduction is a cost subtracted from adjusted gross income when calculating taxable income; tax liability is not reduced dollar for dollar, as is the case with a tax credit, but instead in proportion to the taxpayer’s tax bracket.
COMMERCIAL BUILDINGS TAX DEDUCTION (ALL SYSTEMS)
For projects completed before January 1, 2014, a CBTD can be claimed that covers up to the entire deductible cost of investing in the installation of energy-efficient commercial building property, capped at $1.80/sq.ft.:
Indoor lighting systems AND HVAC/hot water systems AND Building envelope features
To qualify, EPAct 2005 and IRS Notice 2006-52 state:
the project must be certified to reduce total annual energy and power costs to at least 50% less than a Reference Building satisfying the requirements of ASHRAE/IESNA 90.1-2001 solely through changes to the building’s interior lighting, HVAC/hot water and building envelope;
the cost must otherwise be depreciable for tax purposes;
the project must be part of a new construction or renovation project within the scope of ASHRAE/IESNA 90.1-2001 (including addenda 90.1a-2003—transformers, 90.1b-2002—building envelope, 90.1c-2002—ducts, 90.1-d-2002—slab-on-grade floor insulation, and 90.1k-2002—piping insulation, as in effect as of April 2, 2003); and
the project must be located in the United States or its territories.
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