Energy Policy Act of 2005 (EPACT)

Subtitle C – Conservation and Energy Efficiency Provisions
SEC. 1331. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION

 

SUMMMARY - This provision provides a new individual and corporate tax deduction to the owner of a commercial property for the expenditure of energy efficient systems such as (1) the interior lighting system, (2) the heating, cooling, ventilation and hot water systems, and (3) the building envelope. In the case of energy efficient expenditures in public buildings, the deduction is allocated to the building’s planner/architect.

Energy Efficient Commercial Building - Energy-efficient commercial building property expenditure is defined as property (1) which is installed on or in any building located in the United States that is within the scope of Standard 90.1-2001 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America (“ASHRAE/IESNA”), (2) which is installed as part of (i) the interior lighting systems, (ii) the heating, cooling, ventilation, and hot water systems, or (iii) the building envelope, and (3) which is certified as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the interior lighting systems, heating, cooling, ventilation, and hot water systems of the building by 50 percent or more in comparison to a reference building which meets the minimum requirements of Standard 90.1-2001 (as in effect on April 2, 2003).

Deduction - A maximum deduction of $1.80 per square foot of property for which expenditures are made is allowed. Certain certification requirements must be met in order to qualify for the deduction.

  • Partial Deduction - In the case of a building that does not meet the overall building requirement of a 50 percent energy savings, a partial deduction of $0.60 per square foot of property for which expenditures are made is allowed with respect to each separate building system that comprises energy efficient property and which is certified by a qualified professional as meeting or exceeding the applicable system-specific savings targets established by the Secretary of the Treasury. The applicable system- specific savings targets to be established by the Secretary are those that would result in a total annual energy savings, with respect to the whole building, of 50 percent, if each of the separate systems met the system specific target. The separate building systems are (1) the interior lighting system, (2) the heating, cooling, ventilation and hot water systems, and (3) the building envelope.
    • Exception - In the case of lighting system retrofits, (1) until such time as the Secretary issues final regulations, the system-specific energy savings target for the lighting system is deemed to be met by a reduction in Lighting Power Density of 40 percent (50 percent in the case of a warehouse) of the minimum requirements in Table 9.3.1.1 or Table 9.3.1.2 of ASHRAE/IESNA Standard 90.1-2001; (2) in the case of a lighting system that reduces lighting power density by 25 percent, a partial deduction of $0.375 cents per square foot is allowed. A pro-rated partial deduction is allowed in the case of a lighting system that reduces lighting power density between 25 percent and 40 percent. Certain lighting level and lighting control requirements must also be met in order to qualify for the partial lighting deductions.

Treatment and Uses of the Deduction - Deductions are allowed in the tax year during which the property is placed in service. The taxpayer’s basis in the property is reduced by the amount of the deduction allowed.

  • Allocation of Deduction for Public Property - For energy-efficient commercial building property expenditures owned by Federal, State, or local government, including public schools, the Secretary of Treasury shall promulgate regulations that allow the deduction to be allocated to the person primarily responsible for designing the property, such as the architect, in lieu of the public entity.

Certification - The Secretary of the Treasury, in consultation with the Secretary of Energy, will promulgate regulations that describe methods of calculating and verifying energy and power costs using qualified computer software based on the provisions of the 2005 California Nonresidential Alternative Calculation Method Approval Manual or, in the case of residential property, the 2005 California Residential Alternative Calculation Method Approval Manual.

Effective Date - The provision is effective for property placed in service after December 31, 2005 and prior to January 1, 2008.