Energy Efficiency Upgrades in Commercial Buildings Lead to Tax Incentives

The Energy Policy Act of 2005 offers tax deductions to businesses for the cost of upgrading energy efficiency in commercial buildings, such as electricity or HVAC systems (Click here for more). In addition, they are also awarded extended provisions through the Emergency Economic Stabilization Act of 2008. Owners of commercial buildings can get in touch with an energy consultant to determine what improvements they can make so they can take advantage of the following tax incentives:


  1. Tax Deduction

Commercial buildings can receive up to $1.80 per square foot as a tax deduction at free efile time if the upgrades will enable them to save up to 50% for their cooling and heating systems. The same incentive is applicable to buildings that meet ASHRAE Standard 90.1-2001 (before January 1, 2016) or 90.1-2007 (before January 1, 2017). They are also eligible for partial deductions of as much as 60 cents per square foot if they take measures to improve lighting, cooling and heating systems.

  1. Extension of Tax Credits

There’s a 30% investment tax credits awarded to building owners if they invest in qualified fuel cell properties and solar energy properties up to January 1, 2017. The investment tax credit is also given to qualified small wind energy properties. The cap has been increased to $1,500 per half kilowatt and there’s a 10% invest tax credit available for a combination of geothermal heat pumps, heat and power systems.

  1. Depreciation for Smart Grid Systems and Smart Meters

Taxpayers generally recover the cost of smart electric grid equipment or smart electric meters over the course of 20 years but the new incentive enables them to recover it in just 10 years except when the property is already qualified for a shorter recovery timetable.

A Closer Look at Section 179D

This provision was extended back in 2015 as part of the Tax Extenders Law and it was renewed as part of the PATH Act (Protecting Americans from Tax Hikes). Also known as the green building tax deduction, Section 179D is set to expire in December this year.

It offers existing and new building owners a one time depreciation deduction of as much as $1.80 per square foot for installing measures that will lead to energy efficiency. These include efficient building envelopes, efficient interior lighting, and efficient HVAC or hot water systems (if you are looking for HVAC services, you could consider contacting someone like in Florida to come and install a new unit for your business).

To qualify, the building must be able to reduce the total energy and power cost in half. In this respect, consider contacting a professional service team such as Total System Services for expert advice, so that you can ensure power usage is minimal in the building. They also qualify for incentives if the building meets the requirements set by the ASHRAE standard as discussed above.

On the other hand, if the building is unable to reach the 50% efficiency savings requirement, you can still be eligible for a savings of $0.60 per square foot per system. To be awarded the incentive, the building needs to comply with the following:

  • HVAC/ hot water must achieve 15% efficiency (use AirMax to help you talk through efficient HVAC systems)
  • Building envelopes must achieve 10% efficiency
  • Lighting must achieve 25% efficiency

The energy savings should be calculated using qualified and IRS approved computer software and verified by a qualified professional engineer. Here is a list of qualified 179D software given by the US Department of Energy.