Energy Efficient Commercial Property Certifications

The Internal Revenue Code (IRC) has been modified on many occasions to stimulate the investment in energy efficient property. Their primary focus has been on increasing the efficiency of the lighting, HVAC, and the building envelope as a means of reducing power consumption.

Commercial Building Energy Efficient Property

Taxpayers may claim a deduction for the investment in energy efficient property (HVAC, lighting, and building envelop) equal to a maximum of $1.80 per SF. The deduction is available as long as the equipment/system installed lowers the power usage of the property compared to the minimum requirements for a reference building under the ASHREA 90.1-2001 standard. A partial deduction is also allowed if only one facet, such as lighting, is upgraded.

To be eligible for the deduction, the taxpayer must obtain a certification that the design is part of a plan to reduce total annual energy and power costs by 50% for the combined systems. In the event that the taxpayer only upgrades one system, such as lighting, a modified threshold has been established for that particular upgrade. CCR provides support and certification that the plan design meets these requirements.

Case Study:

The benefits associated with the replacement of a $400,000 chiller are as follows:

Increased Net Operating Income by $100,000
Section 179D(a) deduction of $84,000
Increase in property value of $1.3 million using a 7.5% cap rate

Public Property

Designers-of-record or the person who is primarily responsible for designing the system may claim this deduction as long as the equipment/system installed lowers the power usage to a specific threshold for a municipal property. This facet of the legislation was to encourage the design community to develop efficient solutions for schools and other non-profit structures. CCR will provide the independent certification to allow the designer to take advantage of this unique deduction.