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June 12, 2006: IRS Issues Guidance on Commercial Building Tax Deduction

June 12, 2006
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WASHINGTON - The Internal Revenue Service (IRS) has posted guidance on use of the new tax deduction for efficient commercial buildings. A summary of this guidance, as well as a link to the IRS guidance, can be found on the Website of the Tax Incentives Assistance Project (TIAP) (www.energytaxincentives.org). TIAP is a nonprofit effort by a coalition of more than a dozen organizations, led by the American Council for an Energy-Efficiency Economy (ACEEE) and the Alliance to Save Energy, to inform consumers and businesses about federal tax incentives enacted in the Energy Policy Act of 2005.

"This guidance clarifies the process building owners need to use to claim the tax deduction," said ACEEE Executive Director Steven Nadel, who coordinates the overall TIAP effort. "Quite a few building owners have been holding off on decisions about commercial building improvements until this guidance came out; publication of this guidance should allow these projects to move forward."

The commercial building deduction provides a tax deduction of $1.80 per square foot of floor area for commercial buildings that use no more than half the energy of a building constructed according to current model building codes. A deduction of $0.60 per square foot is allowed for reducing lighting energy use; heating, cooling, and envelope energy use; or building envelope heating and cooling loads by amounts consistent with the overall 50 percent savings target. The IRS guidance clarifies procedures for demonstrating that the 50 percent savings target has been achieved, including procedures for obtaining required certifications from qualified experts.

The commercial building guidance complements guidance issued earlier this year on tax credits for efficient new homes and passenger vehicles and on energy-saving improvements to existing homes. Information on these tax credits and the IRS guidance can be found on the TIAP Website (www.energytaxincentives.org).

IRS guidance has not yet been issued on several other energy efficiency tax incentives contained in the 2005 law. Guidance is still needed on incentives for efficient heavy vehicles (e.g., trucks and buses) and on fuel cells and microturbines.

Publication date: 06/12/2006

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