EPAct 2005The Energy Efficient Commercial Buildings Tax Deduction A Detailed Explanation And What It Means for You
EPAct 2005What is EPAct 2005?• The Energy Policy Act of 2005, formally known as EPAct 2005, provides building owners a tax deduction based on the installation of equipment that generates the efficient use of energy.• The Energy Efficient Commercial Building Deduction provides owners the ability to deduct up to $.60/sq. ft. off their federal taxes in the year the lighting systems are placed in service, as long as the lighting exceeds the energy code requirements called out in ASHRAE/IES Standard 90.1-2001.• Lumena recently signed an agreement with a local Energy Management Partner who is Certified to provide EPAct Tax incentive Certificates and would be happy to bring them in for further detail regarding the EPAct program. The challenge is to reverse the widening gap between our growing need for energy and what can be supplied from sustainable sources.
EPAct 2005Why is EPAct 2005 important?• Long-range and far reaching energy policy• Encourages energy conservation – Renewable Resources – Energy-savings innovations – Higher-efficiency products• Regulates electrical motor and equipment performance – Creates minimum efficiency standards – Incentives and research dollars The challenge is to reverse the widening gap between our growing need for energy and what can be supplied from sustainable sources.
EPAct 2005Energy Efficient Commercial Buildings Tax Deduction• Provides accelerated tax deduction incentives for energy efficiency improvements completed in tax years 2006-2008 – Originally scheduled to expire on December 31, 2007. – Extended one additional year through December 31, 2008.*• Use of this tax deduction can generally provide discounts of between 20%-25% overall. *HR 6111: Signed by President George W. bush on December 20, 2008, extended tax benefits for one additional year, through 2008..
EPAct 2005Overview of Lighting Benefits of the Commercial Building Deduction• Building owners can reduce cost and improve their competitiveness/profitability through lighting upgrades.• Lighting upgrades will create new demand for higher end products and large capital investment projects.• Based on estimates from the Department of Energy, lighting represents 40% of the electrical consumption in commercial buildings, equal to HVAC but higher than all other equipment combined.• Lighting is characterized as the easiest upgrade to an electrical system with paybacks generating a 45% ROI within 2.2 years.*• The Commercial Building Tax Deduction is just that…a direct dollar-for-dollar reduction in taxes paid to the government the year the system is put in place. *Based on Estimated Savings from Studies conducted on approved projects. Please note this is an estimate only.
EPAct 2005How to Claim the Deduction• Certification: IRS Notice 2006-52 – Advance notice: Interim guidance for taxpayers to certify that their energy-efficient commercial buildings qualify for the deduction provided by Internal Revenue Code (IRC) section 179D, as added by the Energy Policy Act of 2005. • Taxpayer must obtain a certification letter. • The certification letter must be provided by a qualified third-party inspector. Forms available for download at www.irs.gov or contact your tax preparer directly.
EPAct 2005Providing Certification• A statement that the amount of such reduction has been determined under the rules of IRS Notice 2006-52. – The IRS does not require the actual amount of the deduction to be included in the certificate. – In general, the amount of the deduction is equal to the lesser of: • (1) the capitalized cost incurred with respect to the energy efficient property and • (2) per-square foot allowance. – “Capitalized cost” is a tax term that the tax preparer should be able to determine. Forms available for download at www.irs.gov or contact your tax preparer directly.