Commercial Property Owners Get First Look at Energy Efficiency Deduction Procedures

The Internal Revenue Service (IRS) last week issued an advance copy of Notice 2006-52 on how commercial building owners or leaseholders can qualify for the tax deduction for making their building energy efficient. The notice establishes a process for certifying the energy savings required in order to claim the deduction and announces that the Department of Energy will create and maintain a public list of software that must be used to calculate energy savings for the purposes of certification.


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The commercial building deduction, which was enacted in the Energy Policy Act of 2005, allows taxpayers to deduct the cost of energy-efficient property installed in commercial buildings. Before claiming the deduction, the taxpayer must obtain a certification that the required energy savings will be achieved. Today’s notice prescribes the content of that certification and the qualifications that must be met by the person providing the certification.

The amount of the deductible may be as much as $1.80 per square foot of building floor area for buildings that achieve a 50 percent energy savings target. The notice provides that buildings below the 50 percent threshold may, nevertheless, qualify for a deduction of up to 60 cents per square foot of building floor area if they meet a 16.66 percent energy savings target.

According to the notice, taxpayers are not required to attach the certification to the return on which the deduction is taken, however, taxpayers are required to maintain such books and records as are sufficient to establish the entitlement to, and amount of, any deduction claimed by the taxpayer.

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