The Internal Revenue Service last week released Notice 2008-40 which provides guidance on the process that allows a taxpayer who owns a commercial building and makes improvements “as part of the building’s interior lighting systems; heating, cooling, ventilation, and hot water systems; or building envelope” to obtain a certification that the installed property satisfies the energy efficiency requirements of Section 179D of the Internal Revenue Code.
The amount of the federal income tax deduction for the cost of certain energy efficient property installed under Sec. 179D may be as much as $1.80 per square foot of building floor area for buildings that achieve a 50 percent reduction in energy and power costs.
Earlier guidance had provided buildings that achieve a reduction in energy and power costs of less than 50 percent may, nevertheless, qualify for a deduction of 60 cents per square foot of building floor area if the building achieves a reduction in energy and power costs of 16 2/3 percent. The amount of the deduction for a particular year, generally, is the cost of the energy efficient property placed in service during the year.
By way of background, Section 1331 of the Energy Policy Act of 2005, enacted Sec. 179D of the Code, which provides for a deduction with respect to energy efficient commercial buildings. The section allows a deduction to a taxpayer for part or all of the cost of energy efficient commercial building property that the taxpayer places in service after December 31, 2005 and before January 1, 2009.
The new guidance changes the rules allowing a limited deduction for “partially qualifying property” that meet lower energy savings targets than the prior required 16 2/3 percent reduction. Now, an income tax deduction is available for a 10 percent reduction in energy costs for interior lighting systems; a 20 percent reduction for heating, cooling, ventilation, and hot water systems; and, a 20 percent reduction for the building envelope.
The Notice also provides guidance regarding the definition of a building, which is expanded to include a structure that “is unconditioned attached or detached garage space.” And the Notice further provides guidance regarding the deduction allocable to designers of government buildings.
Notice 2008-40 is scheduled to appear in Internal Revenue Bulletin 2008-14 to be published on April 7, 2008.
If you have questions about qualifying for this tax deduction for energy efficient buildings or if you would like our assistance with Green buildings, generally, please feel free to contact Stuart Kaplow.
