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Energy Tax Incentives Act of 2005
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The Energy Tax Incentives Act of 2005 includes a number of tax incentives aimed at promoting energy efficiency. Of particular interest to those in the commercial and residential real estate community are two provisions that we would like to highlight.

DEDUCTION FOR ENERGY EFFICIENT COMMERCIAL BUILDINGS
  • Taxpayers may claim a deduction for installing or upgrading their building using energy-efficient components
  • The maximum deduction is limited to $1.80 per square foot
  • Costs must be incurred with respect to depreciable property installed in a domestic building, which meet certain industry standards.
  • Installed property must be part of the interior lighting, heating, cooling, ventilation and hot water systems or the "building envelope."
  • Intention must be that the installed property reduces the total annual energy and power costs of the building by 50-percent or more compared to a reference building.
  • Work must meet the requirements of a certification process, guidelines of which are to be issued at a later date.
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  • What is the "building envelope"?
    • The building envelope includes everything that separates the interior of the building from the outdoor environment, including the windows, walls, foundation, basement, slab, ceiling, roof, and insulation.
  • What if I don't qualify for the full deduction?
    • A partial deduction ($0.60 per square foot) is allowed in certain cases where the overall energy reduction does not meet the 50-percent requirements but a separate system i.e., new lighting system does.
  • When do I have to incur these costs to qualify for the accelerated deduction?
    • The qualifying property needs to be placed in service after December 31, 2005 and before January 1, 2008.
TAX CREDIT FOR BUILDING ENERGY EFFICIENT HOMES
  • A $2,000 credit is available to eligible contractors.
  • Who is an eligible contractor?
    • An eligible contractor is a person who builds a new energy-efficient home, or a manufacturer that produces a qualified new energy-efficient manufactured home.
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  • What qualifies as a new energy-efficient home?
    • The home must be located in the U.S.
    • Its construction must be substantially completed after August 8, 2005
    • The home must be certified that it annual heating and cooling energy consumption is at least 50-percent lower than a comparable home
    • The building envelope (see definition above) components must account for at least 1/5 of the 50-percent efficiency measure above.
    • A $1,000 credit is available to qualifying manufactured homes if they cannot meet the above energy saving criteria, and 50-percent is substituted for 30-percent and 1/5 is replaced by a 1/3.
  • What are the effective dates to qualify for this credit?
    • The new home must be acquired after December 31, 2005 and before January 1, 2008.
Please keep in mind that this is still only a highlight of the most important changes in the new law. Please feel free to contact Rob Whittall or Tony Constantine to answer any specific questions you may have.
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Any action based on information herein should be taken only after a
detailed review of the specific situation and appropriate professional consultation.

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