Frequently Asked Questions (FAQs)

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General Questions:

What is required for a designer to be eligible to take the deduction on a government project?

(1) The municipal owner must "allocate” the deduction by signing a municipal allocation form that identifies the owner along with the firm/firms that are being allocated the deduction. CES will provide the required municipal allocation form.
(2) An independent third party, like CES, must perform the energy study, using one of the DOE approved software packages, along with completing a site visit of the property(s) by a "qualified” individual. A qualified individual is defined as a professional engineer or licensed contractor, licensed in the jurisdiction of the building under consideration. CES provides the turnkey services, including the site visit by a "qualified" individual.

What is the potential benefit for commercial building owners?

Commercial building owners that construct energy efficient property may claim a deduction equal to $1.80 per square foot. The taxpayer reduces the basis in its 39 year property equal to the deduction.

What is the Professional Alliance Program?

In an effort to provide clients with needed business solutions, CPA firms, along with other business advisory providers, are creating strategic alliances that allow them to access expertise they might not ordinarily have. Partnering with Concord Energy Strategies provides that added advantage of being able to offer your clients additional value-added services that are not traditionally found in a CPA firm or other business advisory network.

How should a taxpayer claim the section 179D deduction relating to energy efficient commercial buildings?

There is no special form to claim the deduction. The IRS instructions to business forms (e.g., Form 1120 for corporations, Form 1120-S for S corporations, and Form 1065 for partnerships) indicate that the taxpayer should include the amount of the deduction in the amount in the "Other deductions" line of the tax return. A statement listing the types and amounts of "other deductions" should be attached to the return. In addition, it is important that a taxpayer obtain and retain the necessary certifications and documentation to claim the deduction (see IRS Notice 2006-52 for these requirements).

What is the impact of IRS Revenue Procedure 2011-14?

IRS Revenue Procedure 2011-14 now makes it possible to take the Section 179D tax deduction by way of an automatic "change of accounting" method instead of amending prior year tax returns. Previously, taxpayers either had to take the deduction in the current tax year, or for properties placed "in service" in prior years, it required filing an amended tax return. Please see the article in the Section 179D Resource Center on the CES website about 2011-14 for more details.

What is the tax deduction amount?

The deduction is equal to energy efficient commercial building property expenditures made by the taxpayer, subject to a cap. The deduction is limited to an amount equal to $1.80 per square foot of the property for which such expenditures are made. The deduction is allowed in the year in which the property is placed in service. For tax purposes, "placed in service" generally means the time at which the property is ready for its intended use.

What is the effective date for taking advantage of this tax deduction?

The provision is effective for property placed in service between 12/31/2005 and 12/31/2013.

Will there be site visits of buildings to determine compliance?

IRS Notice 2006-52 requires inspectors to be professional engineers or contractors licensed in the jurisdictions where the building is sited. Inspections must meet guidelines of the National Renewable Engineering Laboratory. The inspection is part of the Section 179D energy study that is completed by Concord Energy Strategies.

After the deduction is taken how is the remaining asset value handled?

As stated in the provision, the basis of the property is reduced by the deduction amount and the remaining asset value is depreciated over its tax life for the class of property.

Do public buildings qualify for this tax deduction?

For energy efficient commercial building property expenditures made by a public entity, such as public schools, the IRS issued guidance on March 12, 2008, that allows the deduction to be allocated to the person primarily responsible for designing the property in lieu of the public entity.

Are partial deductions allowed for building subsystems instead of a whole building deduction?

In the case of a building that does not meet the whole building requirement of a 50 percent energy savings, a partial deduction is allowed with respect to each separate building system that comprises energy efficient property and which is certified by a qualified professional as meeting or exceeding the applicable system savings targets established by the Secretary of the Treasury.

The applicable system savings targets to be established by the Secretary are those that would result in a total annual energy savings of 50 percent for the whole building, if each of the separate systems met the system target. Note that the maximum allowable deduction is $0.60 per square foot. The separate building systems are:

1. Interior lighting
2. Heating, cooling, ventilation, and hot water systems
3. Building envelope

IRS modified the June 2006 targets in March 2008. The new subsystem targets are 20% interior lighting, 20% HVAC & hot water systems, and 10% building envelope.

Are garages eligible for the deduction?

Yes, parking garages are a space type covered by ASHRAE 90.1. In March 2008, IRS also added 'unconditioned garages' as eligible.

Does the accelerated tax deduction cover the complete cost of the project, including installation labor, or does it only include the cost of purchasing the equipment? What are the components of the "cost" that can be written off?

It includes anything that can be capitalized, including labor.

Can portions of buildings be retrofitted and still qualify for a deduction; for example, the common area versus tenant spaces, or a portion of the common area?

Portions can be retrofitted and the associated square footage areas considered.

Lighting Questions

Is bi-level switching required for the interim lighting provision?

Yes, as stated in the legislation, bi-level switching is required for the interim provision. It is not required, but may be used in the whole building approach as a means to reduce energy use in the annual cost calculation needed for compliance with the provision.

What are the proscriptive rules for lighting projects?

In the case of a lighting system (including the retrofit of an existing system), the system energy savings target for the lighting system is deemed to be met by a reduction in lighting power density of 40 percent (50 percent in the case of a warehouse) of the minimum requirements in Table 9.3.1.1 or Table 9.3.1.2 of ASHRAE/IESNA Standard 90.1-2001 (as in effect on April 2, 2003).

In the case of a lighting system that reduces lighting power density by 25 percent, a partial deduction of $0.30 per square foot is allowed. A prorated partial deduction is allowed in the case of a lighting system that reduces lighting power density between 25 and 40 percent. Certain lighting level and lighting control requirements must also be met in order to qualify for the partial interim lighting deductions.

Have a question not covered here? Please contact Concord Energy Strategies today at:
Phone: Toll-Free (888) 897-5445 or (502) 384-9078
Fax: (502) 384-9079
Email: info@concordenergystrategies.com