The Federal Energy Policy Act (EPACT) of 2005 provides a Tax Incentive for both Developers of New Commercial Construction and owners or tenants of private Existing commercial buildings.  The building or improvements must be placed into service during 2006 or 2007.  Since most buildings are completed in stages as demand dictates, it becomes difficult to say when a building is "New" construction and when it is "Existing" construction.  Add to that the fact that the EPACT 2005 is only good through the end of 2007, it would have little or no impact on the Nation because a large commercial construction job may take more than two years to design and build.  If Federal legislation is passed to extend the EPACT 2005 to 2010 or some future date, then the EPACT will have time to make a major impact on the energy efficiency of new construction projects.

How Much is the Federal Tax Incentive for the (new) whole building?

The EPACT 2005 provides for a $1.80 per Square Foot of Tax Deduction for a 50% reduction in COST of energy for the building's combined usage of heating, cooling, ventilation, hot water, and interior lighting systems when compared to reference building that meets the minimum requirements of the American Society of Heating and Refrigeration Engineers (ASHRAE) and the Illuminating Engineering Society of North America (IESNA) Standard 90.1-2001.

 

How Much is the Federal Tax Incentive for Remodel or Upgrades?

The dollar amount of the deductions for remodels or upgrades varies depending on which IRS rule is used for certification of the building.  This portion of the EPACT 2005 is considered as "Partially Qualifying Property".   Partially qualifying property falls under two IRS rules called "Permanent Rule" and "Interim Rule".   The Permanent Rule applies to each of the three areas of heating-cooling-ventilation-hot-water, interior lighting, and building shell.  The Interim Rule only applies to the Interior lighting.  

• Lighting, Permanent Rule:  Certified that the Interior Lighting will reduce the combined (Lighting-HVAC-HW-Shell) energy costs by 16.67% (1/3 of 50%) when compared to the reference building.  This is a deduction of $0.60 per SF.

• Lighting, Interim rule:  Certified to;

1. Achieve at least a 25% (50% for a warehouse) reduction in power density when compared to Table 9.3.1.1 or Table 9.3.1.2 (not including additional allowances) of Standard 90.1-2001

2. Have Controls and circuiting to comply with Standard 90.1-2001

3. Include bi-level switching

4. Meet minimum requirements of lighting levels in the IESNA Lighting Handbook, Performance and Application, Ninth Edition, 2000

Here is the tricky part of how much deduction you receive for the Lighting Interim rule.  The interior lighting must achieve a minimum of 25% reduction in power density compared to Tables 9.3.1.1 or 9.3.1.2 to receive a minimum tax deduction of $0.00 (nothing) per SF.  If the building achieves a 40% reduction in power density the tax deduction is $0.60 per SF.  The tax payer can receive $0.04 per SF for each additional percentage point the lighting reduces the power density greater than 25% up to a maximum of $0.60 per SF.

• HVAC and Hot Water, Permanent Rule:  Certified that the HVAC and Hot Water will reduce the combined (Lighting-HVAC-HW-Shell) energy costs by 16.67% (1/3 of 50%) when compared to the reference building.  This is a deduction of $0.60 per SF.

• Building Shell, Permanent Rule:  Certified that the building Shell will reduce the combined (Lighting-HVAC-HW-Shell) energy costs by 16.67% (1/3 of 50%) when compared to the reference building.  This is a deduction of $0.60 per SF.

How Do I Claim the Deduction?

Before the taxpayer can claim the tax deduction, the taxpayer must obtain a certification from a qualified individual that the property satisfies the requirements of EPACT 2005.  Consult you Tax Advisor for details.

 

Who Can Certify the Savings?

The Energy cost savings can be certified by an individual using the Performance Rating Method (PRM) who is;

1. Not related to the owner of the building

2. An Engineer or contractor properly licensed as a professional engineer or contractor in the jurisdiction in which the building is located.

3. Has represented in writing to the taxpayer that he or she has the requisite qualifications to provide the required certification and/or perform the testing.

 

What Type of Building is Eligible?

A building is in the scope of the EPACT 2005 Commercial building Tax Incentive if it is wholly or Partially enclosed within exterior walls, or within exterior and party walls, and a roof, affording shelter to persons, animals, or property.  It can not be a single-family house, a multi-family structure of three stories or fewer above grade, a manufactured house (mobile  or modular home).

 

 What are GREEN Energy Alternatives for Buildings?

 EPACT 2005 provides tax credit for business installation of qualified fuel cells, stationary microturbine power plants, and solar equipment.   This provides a 30% tax credit for the purchase price for installing qualified fuel cell power plants for businesses, a 10% credit for qualifying stationary microturbine power plants and a 30% credit for qualifying solar energy equipment.  This is effective January 1, 2006 through December 31, 2007.