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Overview of EPACT 2005

pdfClick to view Section 1331
Section 1331 of the Energy Policy Act of 2005 provides for and allows a deduction for energy efficient commercial buildings that reduce annual energy and power consumption by 50% compared to the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) standard.

The deduction equal the cost of energy efficient property installed during construction, with maximum deduction of $1.80 per square foot of bhe building.  Additionally, a partial deduction of $0.60 per square foot is provided for sub-systems.

Background on the EPACT Legislation

Bush-Signing-EpactThe act, described by proponents, is an attempt to combat growing energy problems.  It changed US energy policy by providing tax incentives and loan guarantees for energy production and savings of various types.

The Energy Policy Act of 2005 (Pub.L. 109-58) is a bill passed by the United States Congress on July 29, 2005, and signed into law by President George W. Bush on August 8, 2005, at Sandia National Laboratories in Albuquerque, New Mexico.

Commercial building deduction

pdfClick to view the full EPACT bill.
The Act created the Energy Efficient Commercial Buildings Tax Deduction, a special financial incentive designed to reduce the initial cost of investing in energy-efficient building systems via an accelerated tax deduction. Under this provision, building owners (or tenants) can write off the complete cost of upgrading a building's indoor lighting, HVAC/hot water and building envelope in the year the new equipment is placed in service, capped at $1.80/square foot. Alternately, the owner (or tenant) can upgrade one of these three systems to earn the Deduction capped at $0.60/square foot. Interior lighting may also be improved using the Interim Lighting Rule, which provides a simplified process to earn the Deduction, capped at $0.30-$0.60/square foot. Improvements are compared to a baseline of ASHRAE 2001 standards.

What Systems Qualify for EPACT Tax Deductions?

Owners of new and existing buildings (placed in service before January 1, 2006) may earn a partial deduction of $0.60 per square foot per "system" for upgrading one or two major building Sub-systems.  These deductions apply to new buildings placed in service after January 1, 2006, or retrofits performed on existing buildings during the sam time period.

Partial Tax Deductions
 Sample Improvement Size  Lighting HVAC Envelope Full Tax Deduction
 50,000 sf  $15K - $30K $30K $30K $90K
 100,000 sf  $60K  $60K  $60K  $180K
 300,000 sf  $180K  $180K  $180K  $540K

can we certify our own buildings?


Before claiming the Commercial Buildings Tax Deduction, according to IRS Notice 206-52, the taxpayer must have the project certified by an engineer or contractor who:
  1. is properly licensed in the jurisdiction where the building is located
  2. doesn't work for the taxpayer
  3. pdfClick here to view the IRS notice.
  4. has notified the taxpayer in writing that he or she has the requisite qualifications to certify the project
Below is an example statement of qualification:

"I am a qualified individual according to the definition established in IRS Notice 2006-52 and have the requisite qualifications to provide the certification described in Section 4 and the inspection and testing described in Section 4.05 of IRS Notice 2006-52.  I am a {enter 'professional engineer' OR 'licensed contractor'}, properly licensed in the jurisdiction where the energy efficient commercial property is located ({enter your PE ID number OR contractor license number}).  I am not related to the taxpayer claiming the Energy Efficient Commercial Buildings Deduction in meaning of Section 45(e)(4) of the Income Tax Regulations.  My name, address and telephon number are {enter your name, address and phone number}."

The Future of EPACT

Although the original EPACT was signed in 2005, the bill has already been extended once.

President Obama's Plan to Win the Future by Making American Businesses More Energy Efficient through the "Better Buildings Initiative"

pdfClick to view the Better Buildings Initiative
In his State of the Union, President Obama laid out his vision for winning the future by investing in innovative clean energy technologies and doubling the share of electricity from clean energy sources by 2035. Alongside that effort, the President is proposing new efforts to improve energy efficiency in commercial buildings across the country. Last year, commercial buildings consumed roughly 20 percent of all energy in the U.S. economy. Improving energy efficiency in our buildings can create jobs, save money, reduce our dependence on foreign oil, and make our air cleaner. The President's Better Buildings Initiative will make commercial buildings 20 percent more energy efficient over the next decade by catalyzing private sector investment through a series of incentives to upgrade offices, stores, schools and other municipal buildings, universities, hospitals, and other commercial buildings. This initiative builds on our investments through the American Recovery and Reinvestment Act (ARRA), and our continued commitment to passing the President's proposed "HOMESTAR" legislation to encourage American families to make energy saving upgrades in their homes.