Tax Tip from the week of November 10, 2008
Did you take steps to lower your business utility bills this year? Perhaps you upgraded your overhead lighting or added additional ventilation, or a new heating, cooling, or hot water system.
If you implemented measures like these to make your commercial building more energy-efficient — or if you plan to do so before year-end, the improvements may be eligible for a tax deduction.
The "energy-efficient commercial buildings deduction" can provide tax savings when you purchase and begin to use heating, ventilating, and air conditioning, interior lighting, or building envelope systems that reduce your total energy or power costs.
The deduction, which typically applies to systems installed in the interior space of your building or warehouse, lets you currently expense improvements that might otherwise have to be depreciated over a number of years.
To benefit from the full deduction of $1.80 per square foot, the improvements must lower your overall building energy costs by 50% or more, as compared to specified standards. Alternatively, you may qualify for a partial deduction of up to 60¢ per square foot for specific systems that generate 10% or 20% whole-building savings.
For either option, to claim the deduction you'll need a licensed engineer or contractor to certify that the improvements meet energy efficiency requirements.
The IRS released new rules during the year to clarify the original regulations, including a revision of the energy savings percentages that apply to the partial deduction. Please contact us to discuss how you can achieve the maximum benefit.