IRS Notice 2012-22 Adjusts Energy Savings Percentage Guidelines

 
The Energy Policy Act of 2005 includes a tax deduction for investments in "energy efficient commercial building property" designed to significantly reduce the heating, cooling, water heating, and interior lighting cost of new or existing commercial buildings placed into service between January 1, 2006 and December 31, 2013.
 
Building owners or tenants who have paid for qualifying energy efficient construction or improvement projects may be eligible for a tax deduction of up to $1.80 per square foot if energy costs are reduced by 50 percent or more. A partial deduction of $.60 per square foot is available for investments in lighting, heating and cooling, or building envelope that result in a 16⅔ percent reduction in energy costs (one third of the 50 percent requirement). Under IRS Notice 2006-52, these percentages are effective for property placed into service between January 1, 2006 and December 31, 2008.
 
IRS Notice 2008-04, the Energy Improvement and Extension Act of 2008, changed the energy savings percentages for the three subsystems as follows: Interior lighting increased from 16⅔ percent to 20 percent, HVAC increased from 16⅔ percent to 20 percent and building envelope decreased from 16⅔ percent to 10 percent. The reduction of the building envelope percentage to 10 percent is clearly beneficial to building owners taking on whole-facility construction or improvement projects, or those looking for alternative ways to receive a partial deduction.
 
Most recently, IRS Notice 2012-22 provides adjusted guidelines for energy savings percentages required to receive the Section 179D deduction. Interior lighting systems now require a 25 percent reduction in energy costs, while the HVAC percentage has been reduced to 15 percent, and building envelope remains at 10 percent. These percentages are effective for property placed into service between the effective date of Notice 2012-22 and December 31, 2013. IRS guidelines further state that if Section 179D is extended beyond December 31, 2013, these percentages will be effective (except as otherwise provided in an amendment of Section 179D or the guidance thereunder) during the period of extension.
 
Summary of Energy Savings Percentages Provided by IRS Guidance
Energy savings percentages permitted under Notice 2006-52 Energy savings percentages permitted under Notice 2008-40 Energy savings percentages permitted under Notice 2012-22
Interior lighting systems 16 2/3 20 25
Heating, cooling, ventilation, and hot water systems 16 2/3 20 15
Building envelope 16 2/3 10 10
Effective for property placed in service 1/1/2006-
12/31/2008
1/1/2006-
12/31/2013
Effective date of Notice 2012-22 - 12/31/2013; if §179D is extended beyond 12/31/2013, also effective (except as otherwise provided in an amendment of §179D or the guidance thereunder) during the period of the extension
 
Lighting is one of the most common energy efficiency projects undertaken by building owners looking to qualify for the Section 179D deduction. Advances in lighting products and systems as well as building automation systems and improved use of natural lighting, such as daylighting, continue to result in greater reductions in energy use for commercial building owners. As these products and techniques continue to improve, greater savings are being recognized, often exceeding the 25 percent savings guideline.
 
To qualify for the Section 179D deduction it is important to note that IRS-mandated software must be used and a third-party certificate is required for proposed or newly installed: lighting upgrades, HVAC, hot water, and building envelope. The third party would conduct a physical inspection by a qualified engineer who performs an energy efficiency study (EES) to calculate, determine, and certify the allowable deductions for part or all of the cost of the energy efficient lighting, HVAC, hot water, and building envelope – or any one of these subsystems that have been placed in service after December 31, 2005 and before January 1, 2014. Statements of certification and allowable deductions are then issued for properties/systems meeting the minimum requirements of American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE) Standard 90.1-2001 for interior lighting systems, heating, cooling, ventilation, and hot water systems that reflect the appropriate energy reduction. Statements for Energy Efficient Lighting Systems meeting the requirements of the permanent rule Section 2.03(1)(a) - will be made satisfying a reduction according to the appropriate and applied IRS Notice: 2006-52, 2008-40 or 2012-22.
 
Related article:

 

You may like these other stories...

Read more from Larry Perry here and in the Today's World of Audits archive.In my last article, I summarized major differences between principles in U.S. GAAP and the Financial Reporting Framework for Small and Medium-...
OECD calls for coordinated fight against corporate tax avoidanceDavid Jolly of the New York Times reported that dozens of countries with the most advanced economies have agreed on principles for concrete action to prevent...
AgFeed agrees to pay $18 million to settle SEC accounting fraud caseMichael Rapoport of the Wall Street Journal reported on Monday that AgFeed Industries Inc. has agreed to pay $18 million to settle US Securities and...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.
Oct 30
Many Excel users have a love-hate relationship with workbook links. For the uninitiated, workbook links allow you to connect one Microsoft Excel spreadsheet to other spreadsheets, Word documents, databases, and even web pages.