Bigger Buildings = Bigger Deductions |
Bigger Buildings = Bigger Deductions |
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Other Tax Breaks for Businesses |
| The the Energy Tax Incentives Act of 2005 contains major tax breaks for oil, gas and renewable energy companies. The law includes a laundry list of incentives intended to encourage more conservation, domestic energy production and alternative energy sources, including tax credits and deductions for individuals. But the law also rewards other businesses for being more energy-efficient. Here are two provisions: Home conservation credit. Home builders constructing new energy efficient homes in the U.S. may qualify for a new credit of $2,000 for each unit, providing it meets annual heating and cooling energy consumption standards. Specifically, consumption must be at least 50 percent below a comparable unit. Producers of manufactured homes also qualify for the $2,000 credit if the requirements are met. There is a $1,000 credit for certain manufactured homes that meet a 30 percent energy efficiency standard. Effective date: The new home must be acquired after December 31, 2005, and before January 1, 2008. Appliance manufacturer tax incentive. Companies that manufacture energy-efficient refrigerators, dishwashers and clothes dryers qualify for a tax break, as part of the general business credit. Effective date: The appliances must be made after December 31, 2005 and before January 1, 2008. |
Front and center is a tax deduction for qualified commercial property. The Energy Tax Incentives Act of 2005 allows an immediate deduction, (instead of recovering costs through depreciation) for the cost of making some improvements to commercial buildings that save energy.
The deduction is generally equal to $1.80 per building square foot less any deductions and any aggregate deductions claimed in prior years. For instance, if no prior deductions have been claimed, the deduction for a 100,000 square foot building is $180,000 ($1.80 times 100,000).
Unlike other provisions in the new energy law, there is no overall dollar cap on deductions. Therefore, the bigger your building is, the greater your deduction. The deduction is effective for property placed in service after December 31, 2005 and before January 1, 2008.
To qualify for the new deduction, the following requirements must be met:
· The property must otherwise be depreciable or amortizable.
· The property must be installed on or in a building in the U.S. that meets certain standards of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America (ASHRAE/IESNA). The law refers to Standard 90.1-2001 and the society has copies of the updated 90.1-2004 to preview and purchase on its Web site at www.ashrae.org
· The property is installed as part of the interior lighting systems; the heating, cooling, ventilation or hot air systems; or the building envelope.
· Finally, the property must be certified as a part of an overall plan designed to reduce the total annual energy and power costs by 50 percent or more in comparison to a reference building meeting the minimum requirements of the required standards.
If a building does not generate the 50 percent energy savings requirement, a partial deduction may be allowed for each separate building system that is certified as meeting energy-efficient building standards. The partial deduction is equal to 60 cents per square foot for each separate system. Your tax adviser can provide more information.
