Businesses, Builders, Others Can Lower Federal Taxes with Energy-Efficiency
Washington, D.C., June 2009 – Business owners, residential and commercial property builders, and commercial building owners and tenants who increase the energy efficiency of their properties can enjoy lower federal income tax bills, advises the Tax Incentives Assistance Project (TIAP), a coalition of public interest nonprofit organizations, government agencies, and other entities that promote energy-efficiency.
Federal tax breaks also are available to manufacturers of energy-efficient clothes washers, refrigerators, and dishwashers, as is a 10 percent investment tax credit for combined heat and power (CHP) properties with systems smaller than 50 megawatts (MW).
The duration of each of these tax incentives varies and can be found, along with other pertinent information, on the TIAP website at www.energytaxincentives.org.
“The federal tax incentives are a critical key to improving the efficiency of the largest energy-using sector of our economy – buildings – which account for roughly 40 percent of total U.S. energy use and carbon emissions,” noted Kateri Callahan, president of the Alliance to Save Energy, a TIAP founding partner.
Steve Nadel, executive director of the American Council for an Energy-Efficient Economy (ACEEE), also a TIAP founder, commented, “Now is the time to act on energy-efficiency investments. These federal tax incentives will help businesses reduce their operating costs and improve their bottom line while also cutting carbon emissions to stabilize our climate.”
Commercial Buildings
Businesses can take a tax deduction for new or renovated buildings by reducing the energy costs associated with three components – the lighting system, the building envelope, and the heating, cooling, and water-heating equipment. To qualify for the deduction, buildings must meet the ASHRAE 90.1-2001 standard and must be placed in service (be ready and available for use) by December 31, 2013.
The organization that makes the expenditures is generally the recipient of the deduction, which can be taken in the year the building is placed in service. In the case of a public building, the designer may take the deduction. The building must be certified by a qualified individual (a licensed engineer or contractor) as meeting the energy cost savings goal.
The deduction is available at three levels:
Builders of new homes placed in service through December 31, 2009, that exceed national model energy codes by 50 percent, subject to certification, are eligible for a $2,000 federal tax credit. The credit is available for homes (including both site-built and manufactured homes) projected to save at least half of the heating and cooling energy of a comparable home that meets the standards of the 2003 International Energy Conservation Code, including supplements.
Manufactured home producers that exceed national model codes by 30 percent or qualify for the federal ENERGY STAR Homes program are eligible for a $1,000 credit.
Qualifying homes feature a range of innovative design and construction methods that increase energy efficiency, including better-insulated foundations, walls, and ceilings; high-efficiency windows; well-sealed framing and air ducts; high-efficiency heating and cooling systems; and other innovative design and construction methods.
Combined Heat and Power
Owners of combined heat and power (CHP) systems smaller than 50 MW may take advantage of a 10 percent investment tax credit for the first 15 megawatts of CHP property placed into service through December 31, 2016. To qualify, a CHP system must be 60 percent efficient and produce at least 20 percent of its useful energy as electricity and at least another 20 percent as useful thermal energy.
An investment tax credit is a reduction in either overall individual or overall business tax liabilities and may also be applied to the alternative minimum tax. CHP system owners/users cannot take the credit until the year that the system is operational; and only the original constructor or user of the CHP property may take the tax credit.
This year’s economic stimulus legislation also provides the option for businesses to take a grant from the U.S. Treasury Department during 2009 and 2010 in lieu of the investment tax credit. For more information on CHP, see http://aceee.org/chp.
“Combining the CHP credit with other federal or state energy credits may reduce the amount of one of more of the credits,” Nadel noted. “The IRS provides formulas for understanding the impact of these other ‘subsidized energy financing’ mechanisms. TIAP advises taxpayers to consult a tax professional for more information.”
Federal tax breaks also are available to manufacturers of energy-efficient clothes washers, refrigerators, and dishwashers, as is a 10 percent investment tax credit for combined heat and power (CHP) properties with systems smaller than 50 megawatts (MW).
The duration of each of these tax incentives varies and can be found, along with other pertinent information, on the TIAP website at www.energytaxincentives.org.
“The federal tax incentives are a critical key to improving the efficiency of the largest energy-using sector of our economy – buildings – which account for roughly 40 percent of total U.S. energy use and carbon emissions,” noted Kateri Callahan, president of the Alliance to Save Energy, a TIAP founding partner.
Steve Nadel, executive director of the American Council for an Energy-Efficient Economy (ACEEE), also a TIAP founder, commented, “Now is the time to act on energy-efficiency investments. These federal tax incentives will help businesses reduce their operating costs and improve their bottom line while also cutting carbon emissions to stabilize our climate.”
Commercial Buildings
Businesses can take a tax deduction for new or renovated buildings by reducing the energy costs associated with three components – the lighting system, the building envelope, and the heating, cooling, and water-heating equipment. To qualify for the deduction, buildings must meet the ASHRAE 90.1-2001 standard and must be placed in service (be ready and available for use) by December 31, 2013.
The organization that makes the expenditures is generally the recipient of the deduction, which can be taken in the year the building is placed in service. In the case of a public building, the designer may take the deduction. The building must be certified by a qualified individual (a licensed engineer or contractor) as meeting the energy cost savings goal.
The deduction is available at three levels:
- Buildings that save at least 50 percent of projected annual energy costs across all three system components are eligible for a tax deduction of $1.80 per square foot.
- Buildings that save a specified percentage of projected annual energy costs for one of the three components – building envelope (10 percent whole building energy savings), lighting (20 percent), or heating and cooling (20 percent) – are eligible for a $0.60 per square foot deduction.
- For lighting improvements that reduce lighting use by 25-40 percent and also employ dual switching (ability to switch roughly half the lights off and still have fairly uniform light distribution), the $0.60 per square foot may be prorated, ranging from $0.30 per square foot for 25 percent lighting energy savings to $0.60 per square foot for 40 percent savings.
Builders of new homes placed in service through December 31, 2009, that exceed national model energy codes by 50 percent, subject to certification, are eligible for a $2,000 federal tax credit. The credit is available for homes (including both site-built and manufactured homes) projected to save at least half of the heating and cooling energy of a comparable home that meets the standards of the 2003 International Energy Conservation Code, including supplements.
Manufactured home producers that exceed national model codes by 30 percent or qualify for the federal ENERGY STAR Homes program are eligible for a $1,000 credit.
Qualifying homes feature a range of innovative design and construction methods that increase energy efficiency, including better-insulated foundations, walls, and ceilings; high-efficiency windows; well-sealed framing and air ducts; high-efficiency heating and cooling systems; and other innovative design and construction methods.
Combined Heat and Power
Owners of combined heat and power (CHP) systems smaller than 50 MW may take advantage of a 10 percent investment tax credit for the first 15 megawatts of CHP property placed into service through December 31, 2016. To qualify, a CHP system must be 60 percent efficient and produce at least 20 percent of its useful energy as electricity and at least another 20 percent as useful thermal energy.
An investment tax credit is a reduction in either overall individual or overall business tax liabilities and may also be applied to the alternative minimum tax. CHP system owners/users cannot take the credit until the year that the system is operational; and only the original constructor or user of the CHP property may take the tax credit.
This year’s economic stimulus legislation also provides the option for businesses to take a grant from the U.S. Treasury Department during 2009 and 2010 in lieu of the investment tax credit. For more information on CHP, see http://aceee.org/chp.
“Combining the CHP credit with other federal or state energy credits may reduce the amount of one of more of the credits,” Nadel noted. “The IRS provides formulas for understanding the impact of these other ‘subsidized energy financing’ mechanisms. TIAP advises taxpayers to consult a tax professional for more information.”
Looking for a reprint of this article?
From high-res PDFs to custom plaques, order your copy today!
