What is the Commercial Building Tax Deduction?

by | Feb 7, 2013 | Tax

The 2005 Energy Policy Act offers business owners a commercial building tax deduction if they utilize the various methods available to decrease their lighting usage, as well as their heating, cooling and building envelope. The full benefit equals $1.80 per square foot for the lighting deduction. There are also partial benefits for heating, cooling, building envelope and lighting in the amount of $0.60 per square foot. There are various requirements that must be followed to claim the deduction, however.

Why Convert?

New building codes are much stricter than they were in previous years, making eco-friendly lighting a norm in any new building. Older buildings do not have this feature, with their lighting costs making up at least 40 percent of their electric bill. In order to entice building owners to convert to more eco-friendly lighting, the government is offering the commercial building tax deduction to give building owners an incentive to make the investment in more efficient lighting.

What’s the Incentive?

The 2005 Energy Policy Act was designed to encourage building owners to invest in not only energy-efficient lighting but also in energy-efficient options for HVAC, hot water and building envelope. Because the government understands the required investment to make these changes, they are trying to offset some of the cost to make it more palpable for businesses. The incentive must be used in the year during which the improvements were installed on your building.

How to Qualify

The enhancements must be certified to show the building now uses 25 percent less power according to the requirements of ASHRAE-IESNA 90.1-2001. The costs that are used for the deduction need to be depreciable, and the property must be located in the United States. The building must be used for commercial purposes and include four-story apartment buildings and commercial renovations, as well as buildings owned by the government.

The 2005 Energy Policy Act used the commercial building tax deduction to encourage business owners to retrofit their lighting, heating, cooling and building envelope to reduce the amount of energy each building uses. The tax deduction is meant to offset the costs business owners must invest to retrofit their buildings. The requirements are not extremely strict and with the right help of a qualified designer of your systems, can be easily met. The right agency will ensure your changes meet the certification requirements, seeing you through the entire process.

For more information about the commercial building tax deduction, visit the website of Walker Reid Strategies.

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