What Are The Energy Tax Credits Available to Business Owners?

Article Written By: Marky Moore

The Energy Policy Act of 2005 provides new tax incentives for commercial buildings targeting energy efficiency. Existing "credit" incentives include: solar/photovoltaic's, micro turbine engines, fuel cells, geothermal and wind. The new commercial building "deductions" (fall under Section 179D) and target specific assets: lighting, HVAC and water heaters and the building envelope. The building envelope includes: lighting, HVAC, water heaters, roofing materials, insulation, window glazing, building orientation and building ventilation.

These incentives are all deductions - but the qualification requirements may be approached in a variety of ways. If lighting only is installed - it may fall under the "Interim Rules" - which requires a prescribed watts per square feet and multi-level controls. Multilevel controls are something more than on and off. They may be dual switches for every other row of lights or a dimming that modulates the lighting from bright through a graduated dimming process.

The deductions allowable are applied as follows:

- Lighting = $.60/square foot

- HVAC = $.60/square foot

- Building Envelope usually = $.60/per square foot

In order to claim these deductions a qualified third party engineering group must verify and certify the assets and provide specific information to the taxpayer/client. It is important to "Certify" these deductions - so that the taxpayer's/property owner's tax advisor may sign off on the completeness and the validity of the Certification.

Energy Tax Credits are available from both State and Federal Programs. States vary widely in the programs, the technologies covered and the application process. The most accurate and up-to-date resource is www.dsireusa.org - where you can find not only information your state's tax credits but also the utility rebate opportunities in your locale.

A common error is to confuse tax "credits" with tax "deductions". Tax credits are a dollar for dollar reduction in taxes owed - seldom are there issued checks from an agency to a taxpayer for a credit. A "deduction" is a dollar amount applied against your tax bracket - then the tax liability is reduced by that amount.

States are completely independent and offer a very broad range of incentives - typically credits.

The Federal Government also offers tax "deductions" for specific efficiencies: Lighting, Heating/Ventilation/Air Conditioning (HVAC) and the building envelope (the barriers between conditioned and un-conditioned spaceand#8230;or the walls, roof, doors and windows). The deduction for these efficiencies range from $.30/sq ft to $1.80/square foot of the building area.

It is always best to seek advice when considering the application of any of these tax opportunities - first to maximize your investment dollars and more importantly to assure the correct allocation of any incentive.

About the Author

Capital Review Group

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