A Publication of WTVP

The IRS has issued Notice 2006-52, which provides interim guidance for taking the energy efficient commercial buildings deduction (Internal Revenue Code Section 179D).

Requirements to Claim the Deduction

The energy efficient commercial buildings deduction is available for taxpayers who place qualifying property in service in an owned or leased commercial building after December 31, 2005, and before January 1, 2009.

The property must be:

The maximum deduction cannot exceed $1.80 times the square footage of the building, less the aggregate of any prior year deductions taken for the building under Section 179D. If multiple taxpayers install energy efficient commercial building property in the same building, the maximum deduction by all taxpayers cannot exceed the above amount. The square footage of the building includes all conditioned areas with headroom height of 7.5 feet or greater. To compute the percentage reduction in the total annual energy and power costs:

Stated Another Way…

For example, if the annual costs associated with the reference building are $700, and the annual costs associated with the proposed building are $300, there is a 57 percent reduction in energy costs [($700 – $300) / $700].

Section 179D requires the taxpayer to receive certification from a qualified individual to ensure compliance of the building with energy savings plans and targets. Section 5.05 of Notice 2006-52 states the qualified individual must meet the following requirements:

  1. Can’t be related to the taxpayer within the meaning of Section 45(e)(4).
  2. Must be an engineer or contractor who is properly licensed as a professional engineer or contractor in the jurisdiction in which the building is located. 
  3. Present in writing to the taxpayer that he or she has the requisite qualifications to provide the certification required under Section 4 of the notice or to perform the inspection and testing described in Section 4.05 of the notice.

Section 4 of Notice 2006-52 details the items that must be included in the certification to satisfy the requirements of Section 179D(c)(1). A taxpayer isn’t required to attach the certification to the return on which the deduction is taken. However, he or she must maintain sufficient books and records to establish the entitlement to and amount of any deduction claimed.

A partial deduction may be taken if one of the systems allowed under Sec. 179D(c)(1)(C) (i.e., the interior lighting systems, the heating, cooling, ventilation, hot water systems or the building envelope) and subject to certification will reduce the total annual energy and power costs by 16 2/3 percent or more as compared to ASHRAE Standard 90.1-2001. The maximum partial deduction available is $0.60 per square foot of the building. IBI