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2008 Tax Deduction Supports Commercial Green Building Practices

According to Blackman Kallick, a leading Chicago-based accounting firm, the 2008 tax law provides a deduction for commercial green building practices.

Under prior law, the cost of energy-saving investments generally had to be capitalized and depreciated. Now, Section 179D provides a deduction for energy-efficient commercial buildings through December 31, 2008. A deduction of up to $1.80 per square foot is allowed for the cost of investment in energy-efficient commercial building property that is part of new construction or renovation. The amount of the deduction is limited to the lesser of (1) $1.80 per square foot of the building or (2) the cost to install “energy-efficient commercial building property.”

“Energy-efficient commercial building property” is defined as property that is certified to reduce total annual energy costs by at least 50% compared to a building satisfying a standard published by the American Society of Heating, Refrigerating and Air-Conditioning Engineers (www.ashrae.org) or the Illuminating Engineering Society of North America (www.iesna.org).

In addition, the energy efficient building property must meet the following qualifications:

• The property is otherwise eligible for depreciation or amortization.
• The property is installed in a building located in the United States.
• The property is installed as part of the interior lighting systems; heating, cooling, and ventilation systems; hot water systems; or the building envelope.

The basis of the property is reduced by the amount of the deduction in order to determine the depreciable cost.

If the building does not qualify for the full $1.80 per square foot deduction but one of the qualifying systems meets its designated energy savings target, the property will be eligible for a partial tax deduction. The partial deduction is limited to the cost of the equipment or $0.60 per square foot of the building. This reduced deduction of $0.60 per square foot is available for reductions in lighting power density of 40% or more. A lesser amount may be deductible for a reduction of 25% in the lighting power density.

Before claiming the deduction, the taxpayer must obtain a certification of the property. The certification must be provided by a qualified individual. Generally, a qualified individual is an unrelated person who is a licensed professional engineer or contractor in the jurisdiction in which the building is located and has represented in writing to the taxpayer that he has the requisite qualifications to provide the certification needed. The Department of Energy creates and maintains a public list of software that may be used to calculate energy and power consumption and costs for purposes of providing a certification under section 4 of Notice 2006-52. Click here to view list of software. The certification is not required to be attached to the tax return but must be retained in the taxpayer’s records.

For more information, please contact Cara Hoffman of Blackman Kallick at 312-980-3274. For more information about Blackman Kallick, visit BlackmanKallick.com.

Adapted from an article in Blackman Kallick Tax Highlights, June 2008, originally titled, “Save $$ by Going Green With Your Building.” This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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