GLUMAC - Engineers for a sustainable future

Tom White, P.E., LEED^® AP, Portland Associate

Background

The Energy Policy Act (EPAct) of 2005 authorizes federal tax incentives for certain non-residential investments in energy efficiency and renewable energy put into service between January 1, 2006 and December 31, 2008.

NOTE: State tax credits are also available for most of these systems, however, the requirements may differ somewhat from the federal tax credits. In addition, for state tax credits you must apply for pre-certification to ensure the system qualifies before you proceed.

What type of projects are eligible?

Tax deductions apply to new buildings or renovations of existing buildings completed between January 1, 2006 and December 31, 2008 that reduce the combined energy and power costs of the building's heating, cooling, ventilation, water heating, and interior lighting systems. Reductions in other uses €“ such as receptacles, process loads, refrigeration, cooking, and elevators €“ are not eligible for the deduction, and are not considered when calculating building energy use. Other systems that may also qualify include:

• Fuels cells with a nameplate capacity of at least 0.5 kilowatts (500 watts) with a generation efficiency greater than 30 percent are eligible for a federal tax credit of $500 for each 0.5 kW of capacity.
• Microturbines with an electric-only generation efficiency of not less than 26 percent are eligible for a tax credit equal to $200 per kW up to 2,000 kilowatts. These credits do not apply to fuel cells or microturbines used predominantly in the trade or business of the furnishing or sale of telephone services.
• Solar energy systems purchased between January 1, 2006 and December 31, 2008, are eligible for a 30 percent federal tax credit. This tax credit does not have a maximum credit limit. The credit is reduced to 10 percent after December 31, 2008.

The federal tax credit for fuels cells and microturbines is available for
systems placed in service between January 1, 2006 and December 31, 2008.

What tax incentives are available?

A deduction (not a credit) on federal taxes is available to owners if it is certified that the combined energy and power costs on the eligible building will be reduced compared to the same building if it were designed to meet the minimum requirements of ASHRAE Standard 90.1- 2001. If a deduction is allowed, amount of the deduction reduces the basis of the property.

For buildings owned by a federal, state, or local government entity, the designer may take the deduction.

Full Deduction. Up to $1.80/sf is available if it can be certified that the combined energy and power costs will be reduced by at least 50 percent.

Partial Deduction. For projects with less than 50 percent reduction, deductions of up to $0.60/sf can be taken for improvements in any one of the three major building systems which affect energy use:

• interior lighting system;
• heating, cooling, ventilation and hot water system; or
• building envelope.

To qualify, the particular system must be certified to reduce total building energy and power costs by at least 16.67 percent. The deduction is prorated by the amount of reduction between $0.60 and $1.80/sf. In addition, interior lighting systems may also qualify for a partial tax credit under interim rules.

What is the process for obtaining the tax incentives?

To qualify for the tax credit, you must obtain certification from a qualified individual that the building satisfies the requirements. A qualified individual is a licensed engineer or contractor who has represented in writing to the taxpayer that they have the requisite qualifications to provide the certification or to perform the inspection. The qualified individual must:

• Determine that the reduction in energy use does indeed meet the energy-saving targets, using procedures and software approved in IRS Notice 2006-52
• Inspect the building to confirm the building will meet the energy-saving targets
• Provide the necessary statements and documentation to the taxpayer for certification.

What information must be included in my certification?

The name, address, and telephone number of the qualified individual, who is a licensed engineer or contractor, and the address of the building to which the certification applies.

• A statement by the qualified individual that either:
  
  • The installed energy efficiency measures will reduce the total annual energy and power costs compared to those implemented in a Reference Building that meets the requirements of ASHRAE Standard 90.1-2001 by 50 percent or more; OR
  • The installed energy efficiency measures for either lighting, HVAC and hot water, or the envelope will reduce the total annual energy and power costs compared to a Reference Building that meets the requirements of ASHRAE Standard 90.1-2001 by 16.67 percent or more.
• A statement by the qualified individual verifying the reduction and that inspections have confirmed the building has met, or will meet, the energy-saving targets contained in the design plans and specifications.
• A statement that the building owner has received an explanation of the energy efficiency features of the building and its projected annual energy costs.
• A statement that qualified computer software was used to calculate energy and power consumption and costs, and identification of the qualified software used.
• A list identifying the interior lighting systems, the heating, cooling, ventilation, and hot water systems, and the building envelope components installed on or in the building, the energy efficiency features of the building, and its projected annual energy cost.
• A declaration, applicable to the certification and any accompanying documents, signed by the qualified individual, in the following form: "Under penalties of perjury, I declare that I have examined this certification, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this certification are true, correct, and complete." Anyone who wants to provide certification as a "qualified individual" should check the IRS Notice 2006-52 (http://www.irs.gov/pub/irs-drop/n-06-52.pdf) for additional details on the method of computation, inspections, and approved software, and other requirements. A taxpayer is not required to attach the certification to their tax return but you must retain the certification and any pertinent documents.

Additional information

• Efficient Buildings
• Energy Tax Incentives
• GE Lighting

NOTE: This information is intended as guidance only. The IRS makes the final determination on the amount of the federal tax credits or deductions you may claim. Please contact the IRS or a tax accountant or lawyer for further assistance on the federal tax incentives. For accuracy and completeness you are advised to consult the authorizing federal law, IRS rules, or a tax professional.

For more information about how Glumac can help support your application for federal tax incentives call or email:

Mitchell Dec, LEED^® AP
320 SW Washington Street, Suite 200
Portland, OR 97204
503.227.5280
mdec@glumac.com
www.glumac.com