Follow this new blueprint for energy-tax incentives — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Follow this new blueprint for energy-tax incentives

Get PDF file

by on
in Small Business Tax

The IRS has issued new guidelines clarifying what kind of commercial-building improvements qualify for tax incentives available through the recently enacted Energy Policy Act of 2005.

The IRS says single-family homes, multifamily structures of three stories or fewer above grade or mobile or modular homes do not qualify for the tax breaks. Any energy-efficient improvements also must be installed as part of the:

-Interior lighting system.
-Heating, cooling, ventilation and hot water system.
-Building envelope.

See IRS Notice 2006-52 for more information.

Background: Under the new energy law, commercial-building owners or leaseholders can deduct all or part of the cost of energy-efficient property placed in service after Dec. 31, 2005, and before Jan. 1, 2008.

The maximum deduction generally is equal to $1.80 per building square foot less any aggregate deductions claimed in prior years. Example: If you’ve claimed no prior deductions, the maximum you can deduct for a 100,000-square-foot building is $180,000 ($1.80 times 100,000).

The law does not cap deductions: The bigger the building, the bigger your potential deduction.

To qualify, the improvements must reduce annual energy and power costs by 50 percent or more, certified by a contractor or engineer. But you may be eligible for partial tax savings if the building meets a 16 2/3 percent energy-savings target. The contractor or engineer who provides the certification must use computer software to calculate energy and power consumption and costs.

Tip: The Energy Department will create and maintain a list of computer software that contractors and engineers may use. Find the list at /buildings/info/tax†credit†2006.html.

Alert: These tax breaks go off the books after 2007. When you consider all the work that you must do to meet this deadline— such as lining up subcontractors and other workers—it’s important for building owners to firm up plans right away.

Related Articles...

Leave a Comment


Previous post:

Next post: