Energy Credits

New Deduction for Energy-Efficient Commercial Building (Code Section 179D, as Added by Act Section 1331)

• The new Energy act is a major incentive for building owners to upgrade their systems, and for those building structures, to design them in an energy-efficient manner.  The deduction is available whether the building is new or used.

The maximum energy-efficient commercial building (EECB) deduction is equal to (1) $1.80 per building square foot (60 cents per building square foot, for certain separate building systems, less (2) the aggregate amount of EECB deductions allowed for the building for prior years [Code Section 179D(b), Code Section 179D9(d)].

The new deduction is available only if the EECB property meets all of the following conditions:

1. It is property that is otherwise depreciable or amortizable
2. It is installed on or in any building located in the U.S. that is within the scope of Standard 90.1-2001 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America (ASHRAE/IESNA).
3. It is installed as part of
• (a) the interior lighting systems,
• (b) the heating, cooling, ventilation, and hot water systems, or
• (c) the building envelope (as described below).

Building Envelope - The Conference Agreement says that it is the intended that the building envelope component means insulation materials or systems specifically and primarily designed to reduce heat loss or gain, exterior windows (including skylights), doors, and any duct sealing and infiltration reduction measures.

New Tax Credit for Building Energy-Efficient Homes (Code Section 45L, as Added by Act Section 1332)

The Energy Act creates a new tax credit for "eligible contractors" (building or home manufacturers) that construct qualified new energy-efficient homes.  The credit is either $2,000 or $1,000 per qualifying home.

For a structure to qualify for the credit:

1. It must be located in the U.S.;
2. Its construction (which includes reconstruction and rehabilitation) must be substantially completed after the enactment date (08-08-2005);
3. It must meet specific energy saving requirements explained below;
4. It must be built by the "eligible contractor" (the person who constructed the home, or the manufacturer, if the structure is a manufactured home); and
5. It must be acquired (which includes purchased) by a person from the eligible contractor for the use as a residence during the tax year.

A home qualifies for the $2,000 credit if:

1. It is certified in accordance with guidance to be issued by IRS to have a projected level of annual heating and cooling energy consumption that meets the standards for a 50% reduction in usage, compared to comparable dwelling building in accordance with the standards of Chapter 4 of the 2003 International Energy Conservation Code as in effect (including supplements) on the enactment date, and the Federal minimum efficiency standards specified in Code Section 45L(c)(1)(A)(ii); and
2. Its building envelope component improvements account for at least one-fifth of the 50% reduction [Code Section 45L(c)]

A home qualifies for the $1,000 credit if;

1. It is certified in accordance with guidance to be issued by IRS to have a projected level of annual heating and cooling energy consumption that meets the standards for a 30% reduction in usage, compared to comparable dwelling building in accordance with the standards of Chapter 4 of the 2003 International Energy Conservation Code as in effect (including supplements) on the enactment date, and the Federal minimum efficiency standards specified in Code Section 45L(c)(1)(A)(ii); and its building envelope component improvements account for at least one-third of the 30% reduction.
2. It meets the requirements established by the Administrator of the Environmental Protection Agency under the Energy Star Labeled Homes Program [Code Section 45L(c)(3)].

New Tax Credit for Energy Efficient Improvements to Existing Homes (Code Section 25C, as Added by Act Section 1333)

1. A taxpayer may claim a lifetime nonrefundable credit of up to $500 for making qualifying energy-saving, improvements to his existing home, but only $200 of the credit amount may be for qualifying window expenditures.
2. Qualifying improvements

• Credit limitation of 10% - Qualified energy-efficiency improvements (a credit may be claimed for only 20% of the cost of such improvements); and
• Residential energy property expenses. (dollar limits apply to some types of qualifying expenses)[Code Section 25C(a), Code Section 25C(b).

New Tax Credit for Energy Efficient Property (Code Section 25D, as Added by Act Section 1335)

1. The Energy Act provides a new personal tax credit for the purchase of residential energy-efficient property.
2. New credit for residential energy-efficient property.

The Act provides a new personal tax credit for the purchase of residential energy-efficient property placed in service after December 31, 2005 and before January 1, 2008 [Code Section 25D].

The credit equals the sum of the following:

1. Credit maximum $2,000 ? 30% of the amount paid for qualified photovoltaic property, subject to a maximum credit of $2,000;
2. Credit maximum $2,000 ? 30% of the amount paid for qualified solar water heating property, subject to a maximum credit of $2,000;
3. Credit maximum $500 for each 0.5 kilowatt of capacity ? 30% of the amount paid for qualified fuel cell property, subject to a maximum credit of $500 for each 0.5 kilowatt of capacity [Code Section 25D(a), Code Section 25D(b)].

Qualifying solar water-heating property (30% of cost of to credit $2,000) is property to heat water for used in a dwelling unit located in the U.S. and used as a residence by the taxpayer if at least half of the energy used by the property for such purpose is derived from the sum [Code Section 25D(d)(1)].

The credit is nonrefundable [Code Section 25D(a)], and the depreciable basis of the property is reduced by the amount of the credit [Code Section 1016(a)(35)].