| The Energy Policy Act of 2005 (EPACT) is one of | | | | improvements in one of the previous 3 categories |
| the most comprehensive and sweeping energy | | | | (Lighting, HVAC, Building Envelope). With recent |
| legislation packages ever passed. Signed into law by | | | | technological advances in lighting, as well as the |
| President George W. Bush on August 8th, 2005, the | | | | generally lower costs compared to the other |
| bill authorized massive tax benefits, reductions and | | | | categories, this deduction is considered the "lowest |
| deductions, plus loan guarantees in an effort to spur | | | | hanging fruit". A partial deduction for Interim Lighting |
| action on a new energy policy. | | | | affords the bank a deduction between $.30 -.60 per |
| Buried among these voluminous new initiatives now | | | | square foot and requires a 25 - 40% reduction in |
| part of the IRS Tax Code, was the new Deduction | | | | lighting power density (50% in the case of |
| of Energy Efficient Buildings granted under Title 26, | | | | warehouses). As many banks have multiple branches, |
| now known simply as Section 179D. Specifically, | | | | and this is a per building incentive, the deductions can |
| Section 179D offers substantial tax benefits to | | | | be quite substantial. |
| commercial property owners to upgrade their | | | | To summarize: |
| buildings and make them more energy efficient. The | | | | Improvements can be made in three categories |
| legislation was targeted to expire in 2008, however, | | | | - Lighting |
| the American Reinvestment and Recovery Act of | | | | - HVAC |
| 2009 extended the benefits of this bill through 2013. | | | | - Building Envelope |
| Perhaps due to the enormity of the legislative | | | | - Each can achieve a $0.60 deduction per sq. ft. |
| package, or a lack of understanding, the IRS reports | | | | - Lighting is considered the "low hanging fruit" due to |
| that less than 2% of all commercial property owners | | | | rapid ROI and lower upfront costs |
| have taken advantage of this tax saving opportunity. | | | | Three Year "LookBack" |
| There are special rules for government owned | | | | What about banks which may have already made |
| buildings, wherein the tax benefits may be | | | | significant investments in energy upgrades? |
| transferred to a project manager or architect, but | | | | Fortunately, the IRS rules allow banks to take |
| for purposes of this article, we will focus on how | | | | deductions on qualified upgrades completed during |
| banks, as building owners and leaseholders, can | | | | the 3 prior tax years. For qualifying institutions, this is |
| leverage these benefits. | | | | simply found money. |
| About the Actual Deduction | | | | Certification of Qualified Property |
| Under Section 179D, deductions are based on areas | | | | To insure receipt of expected credits, the taxpaying |
| of energy savings and total square footage of a | | | | entity must certify the property meets all |
| building. The regulation provides commercial building | | | | energy-conservation claims, and establish the total |
| owners and leaseholders with a deduction for | | | | annual energy savings required for obtaining a partial |
| implementing energy-efficient commercial building | | | | deduction. The guidelines provide information about |
| property in their buildings between December 31, | | | | the software programs that must be used in |
| 2005, and January 1, 2013. The deduction is available | | | | calculating these power and energy expenditures. |
| whether the respective space is new construction or | | | | Additionally, the property must be certified as an |
| already existing and applies to the year in which the | | | | energy-efficient commercial building property by a |
| energy-saving property was made ready for its | | | | qualified individual. These individuals may not be |
| intended use. It is divided into three categories: | | | | related to the taxpayer and must be an engineer or |
| - Lighting | | | | contractor properly licensed in the jurisdiction where |
| - HVAC & hot water | | | | the building(s) is/are located. The certification need |
| - Building Envelope | | | | not be attached to the tax return, but Section |
| The maximum deduction of $1.80 per square foot | | | | 1.6001-1(a) of the IRS regulations state that |
| requires a 50% reduction in total annual energy and | | | | taxpayers are required to maintain books and records |
| power costs (compared to a reference building that | | | | that would satisfy investigation into the applicability of |
| meets the minimum requirements of American | | | | the deduction. |
| Standard of Heating, Refrigeration and Air | | | | Note: The preceding article is not legal nor accounting |
| Conditioning Engineers (ASHRAE) 90.1-2001), not to | | | | advice and should not be relied upon without the |
| exceed the amount equal to the cost of energy | | | | advice and guidance of a professional Tax Advisor |
| efficient commercial property placed in service during | | | | familiar with all relevant facts. It is always highly |
| the taxable year. A partial deduction of $.60 per | | | | recommended that you consult with your own |
| square foot requires a 16 2/3% reduction in energy | | | | attorney and accountant regarding any IRS Tax |
| consumption, and can be achieved through | | | | Code issues. |