IRS Issues Guidance on Commercial Building Tax Deduction

June 7, 2006

The U.S. Internal Revenue Service (IRS) issued on June 2nd an advance copy of a notice on how commercial building owners or leaseholders can qualify for a federal tax deduction by making their buildings more energy efficient. The commercial building deduction, which was enacted in the Energy Policy Act of 2005, allows taxpayers to deduct the cost of energy-efficient property installed in commercial buildings. The amount deductible may be as much as $1.80 per square foot of building floor area for buildings that cut their energy use by half. Buildings that fall below that target can still earn a deduction of 60 cents per square foot if they at least cut their energy use by one sixth.

Before claiming the deduction, the taxpayer must obtain a certification that the required energy savings will be achieved, and the notice describes how to obtain that certification. To support this effort, DOE will create and maintain a public list of software that must be used to calculate energy savings for purposes of providing the certification. See the IRS press release and the full notice (PDF 99 KB). Download Adobe Reader.

For more information on tax incentives, see EnergyTaxIncentives.org, a project of the Tax Incentives Assistance Project, as well as the Web site of the Commercial Building Tax Deduction Coalition. In addition, the National Lighting Bureau (NLB) has created a brochure (PDF 903 KB) about how the tax incentives encourage high-efficiency indoor lighting.