The Energy Policy Tax Act of
2005 included incentives for taxpayers that make
new or existing commercial property more energy
efficient. Under new IRC section 179D, taxpayers
that own or lease commercial buildings and install
certain energy-efficient improvements therein
after 2005 and before 2008 are eligible for an
immediate deduction for the cost of those
improvements. Notice 2006-52 set forth the process
taxpayers must follow to claim this deduction.
To be eligible for the deduction, the
commercial property must be:
Installed on or in any building located in
the United States.
Installed as part of the:
Interior lighting systems.
Heating, cooling, ventilation or
hot water systems.
Building envelope (i.e., wall and
roof assemblies, insulation, air/vapor
retarders, windows, weather-stripping and
Certified as having reduced total annual
energy and power costs by at least 50%.
The maximum deduction cannot exceed $1.80
multiplied by the building’s square footage, less
the total of any prior-year’s energy deductions
already taken for the building. Square footage is
measured from the exterior faces of exterior walls
or from the centerline of walls separating
Partial deduction. Subject to
certification (discussed below), a partial
deduction may be available if one of the systems
involved (i.e., interior lighting, heating,
cooling, ventilation, hot water) reduces total
annual energy and power costs by 162/3%; the
maximum partial deduction available is 60 cents
per square foot.
DETERMINING THE ENERGY REDUCTION
To compute the percentage reduction in total
annual energy and power costs, a performance
rating method is used. The reduction in costs
attributable to interior lighting, heating,
cooling, ventilation and hot water must be 50%
below those of a comparable building (in the same
climate zone) that meets certain minimum
A taxpayer that wishes to claim the
deduction must receive certification from a
“qualified individual.” This is someone (not
related to the taxpayer) who is a properly
licensed engineer or contractor who provides, in
writing, that he or she has the requisite
qualifications to provide the required
certification or to perform the needed inspection
Taxpayers are not required to
attach the certification to their returns.
However, they must maintain sufficient books and
records to establish the qualification and amount
of the deduction claimed, including the
certifier’s name, address and phone number; the
building’s address; a statement that the installed
components meet the required reduction in energy
costs; and the qualified computer software used to
make the calculations.
discussion, see Tax Clinic, “Energy-Efficient
Commercial Buildings Deduction Revisited,” by
Michelle Schuerman, CPA, in the April 2007 issue
of The Tax Adviser.
—Lesli S. Laffie, editor
The Tax Adviser