Cherrytree Group LLC Blog

What is an energy tax credit and how do I know if I am eligible for one?

Current law allows taxpayers the ability to deduct the cost of energy-efficient property installed in commercial buildings.  This deduction will allow commercial real estate owners to qualify for tax deductions under the Energy Policy Act of 2005 (EPACT).  Many EPACT benefits were extended by the American Recovery and Reinvestment Act of 2009, creating greater options for taxpayers.   Remember, this is a tax deduction, and not a tax credit.   As I explained in one of my previous blog posts, a tax credit is a dollar-for-dollar credit against your tax obligation, whereas a deduction, reduces your gross income, and, therefore, will save you taxes as a percentage of the tax obligation.

As a commercial real estate owner, you could be eligible for a tax deduction of up to $1.80 per square foot of building floor area for improving the energy efficiency of your commercial property, or for adding energy efficient systems into your buildings.

To qualify for the full deduction, a commercial real estate owner must make investments which will reduce energy costs by 50% or more.  A partial deduction of $0.60 per square foot is available for investments which will reduce energy costs by 16 2/3% in one of three systems—lighting; heating and cooling; or building envelope.  Remember, tax deductions reduce your overall taxable income reducing the taxes you owe by a percentage.

The person or organization that benefits from the deduction are those who pay for construction and/or installation of the energy-efficient property, i.e. usually the building owner, unless it is a government owned building.  If the building is government owned, then the beneficiary could be the person responsible for designing the building or project.