What types of buildings will qualify? What types of expenditures will qualify?
Section 1331 of H.R. 6 provides that energy-efficient commercial building property is defined as property that is:
1. Installed on or in any building located in the United States that is within the scope of Standard 90.1-2001,
Energy Standard for Buildings Except Low-Rise Residential Buildings, of the American Society of Heating, Refrigerating,
and Air Conditioning Engineers and the Illuminating Engineering Society of North America;
2. 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. Certified as being installed as part of a plan designed to reduce the total annual energy and power costs of interior
lighting systems, heating, cooling, ventilation, and hot water systems of the building by 50 percent or more when compared
to a reference building, which meets the minimum requirements of Standard 90.1-2001 (as in effect on April 2, 2003).
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What is the tax deduction amount?
The deduction is equal to energy-efficient commercial building property expenditures made by the taxpayer, subject to a cap.
The deduction is limited to an amount equal to $1.80 per square foot of the property for which such expenditures are made. The
deduction is allowed in the year in which the property is placed in service. For tax purposes, "placed in service" generally means
the time at which the property is ready for its intended use.
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Are there certification requirements and if so, what are they?
Certain certification requirements must be met in order to qualify for the deduction. The secretary of 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. These
regulations are currently being drafted by DOE in consultation with Treasury Department officials in advance of the implementation date
of January 1, 2006.
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Do public buildings qualify for this tax deduction?
For energy-efficient commercial building property expenditures made by a public entity, such as public schools, the secretary of the
treasury shall promulgate regulations that allow the deduction to be allocated to the person primarily responsible for designing the
property in lieu of the public entity.
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Are partial deductions allowed for building subsystems instead of a whole building deduction?
In the case of a building that does not meet the whole building requirement of a 50 percent energy savings, a partial deduction 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 savings targets established by the secretary of the treasury.
The applicable system savings targets to be established by the secretary are those that would result in a total annual energy savings of
50 percent for the whole building, if each of the separate systems met the system target; note that the maximum allowable deduction is $0.60
per square foot. The separate building systems are the:
1. Interior lighting system;
2. Heating, cooling, ventilation, and hot water systems; and
3. Building envelope.
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What are the interim rules for lighting projects?
Building owners are encouraged under the law to focus first on lighting systems for two reasons: first, their ease and availability of
upgrading, and second, the known achievements in energy efficiency that will be gained. In the case of a lighting system (including the
retrofit of an existing system), until such time as the secretary of the treasury issues final regulations, the system 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 (as in effect on April 2, 2003).
Note that in the case of other building systems (i.e., HVAC systems and the building envelope), partial deductions are generally not allowed
until the secretary establishes system targets for such systems.
In the case of a lighting system that reduces lighting power density by 25 percent, a partial deduction of $0.30 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 and 40 percent.
Certain lighting level and lighting control requirements must also be met in order to qualify for the partial interim lighting deductions.
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What is the effective date for taking advantage of this tax deduction?
The provision is effective for property placed in service after December 31, 2005, and prior to January 1, 2008.
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After the deduction is taken how is the remaining asset value handled?
As stated in the provision, the basis of the property is reduced by the deduction amount and the remaining asset value is depreciated over
its tax life for the class of property.
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Are churches eligible for the deduction?
No. Although religious buildings are in 90.1 and they don’t pay taxes, they are not government buildings, so churches don’t qualify.
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Does the accelerated tax deduction cover the complete cost of the lighting, including installation labor, or does it only include the cost
of purchasing the equipment? What are the components of the "cost" that can be written off?
It includes anything that can be capitalized, including labor.
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Are recycling costs deductible?
Any cost that may be capitalized may be considered for the deduction.
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Can portions of buildings be retrofitted and still qualify for a deduction; for example; the common area versus tenant spaces; or a portion
of the common area?
Portions can be retrofitted and the associated square footage areas considered.
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If a building is used as both a warehouse and manufacturing facility, ASHRAE/IES 90.1 appears to allow the building area method to be used
separately for the warehouse portion and the manufacturing facility portion. Is it then the case that the tax deduction would be calculated
separately for both areas of the building if the building area method is used-50% savings and $0.60/sq.ft. for the warehouse, and 25-40%
savings and $0.30-$0.60/sq.ft. for the manufacturing facility?
The building areas could be addressed separately, as suggested.
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Are exit signs included in the program; and if so; can they be retrofits versus new signs?
No, ASHRAE 90.1-2001 does not allow exit signs to be considered in the lighting power allowance determinations.
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Are screw in compact fluorescent lamps included; and if so; is there any requirement for permanence?
No, screw in CFLs could not be used to reduce wattage for purposes of the deduction. The ASHRAE 90.1-2001 lighting power calculations require
that the maximum labeled wattage of incandescent luminaire be used.
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Is there a criterion for what type of lighting systems qualify for the partial tax deduction? For example, in a manufacturing facility, would
task lighting upgrades qualify if the LPD is reduced by enough to obtain the deduction? Or is the deduction for ceiling lighting system upgrades?
The legislation does not specify lighting technology for the tax deduction. The applicability of task lighting would typically turn on the
question of whether it is "permanently installed". ASHRAE 90.1-2001 defines "permanently installed" as "equipment that is fixed in place and
is not portable or movable" . To be considered, then, the task lighting would need to satisfy this definition.
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Is there a site that I can visit for answers to questions like these?
www.efficientbuildings.org contains frequently asked questions and other helpful information.
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Is bi-level switching required for the interim lighting provision?
Yes, as stated in the legislation, bi-level switching is required for the interim provision. It is not required, but may be used in the whole
building approach as a means to reduce energy use in the annual cost calculation needed for compliance with the provision.
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I have seen several different definitions of bi-level switching, for example in California and New York rules. What is the definition?
Some state regulations define bi-level switching in a particular way for their own jurisdictions. These are specific applications of a more
general approach. Bilevel switching is defined as manual or automatic control (or a combination thereof) that provides two levels of lighting
power in a space (not including off). A space is defined as an area enclosed by four or more floor to ceiling walls. Dimming or switching would
satisfy this definition. Of course, besides satisfying the tax deduction requirements, an installation would also have to satisfy whatever the
regulations are for the jurisdiction, which may, but typically don’t, require bi-level switching.