Technical Bulletin

Energy Policy Act of 2005 - Section 1331 Tax Deductions
Technical
Application Note
Application Note
To encourage greater energy conservation, the Federal Government passed H.R. 6, the
Energy Policy Act of 2005. Section 1331 of the Act establishes energy efficient
commercial building tax deductions for expenditures related to 1) the interior lighting
systems, (2) HVAC and hot water systems, and (3) the building envelope.
These deductions are generally provided to the person or organization making the
expenditures for construction, usually the building’s owner or, for some HVAC or lighting
efficiency projects, a building tenant. In the case of public entities such as public schools,
hospitals or government-owned buildings, the deduction can be allocated to the person
primarily responsible for designing the property.
The deductions can only be applied for if the commercial building property is placed
into service between January 2, 2006 and December 31, 2007. Related expenditures
must be certified to have produced annual energy and power cost reductions that
exceed specific minimum energy efficiency requirements set forth in the ASHRAE/IES
90.1-2001 Energy Standards (as in effect on April 2, 2003).
TAX DEDUCTIONS AVAILABLE THROUGH SECTION 1331 ARE AS FOLLOWS:
1.
Surpassing the ASH
RAE/IES 90.1-2001 annual energy and power consumption
requirements for the complete commercial building by 50% results in a tax
deduction for the year the building is placed into service – generally meaning the
time when the property is ready for its intended use - equal to the cost of equipment
and labor to achieve those energy savings, subject to a cap of $1.80/square foot.
2. Alternatively, shy of meeting an overall building energy reduction of 50%, the bill
offers a sliding scale of partial tax deductions for energy savings beyond ASHRAE/IES
90.1
-2
00
1 requirements in each of the three areas mentioned above. But, the
maximum deduction allowed for each area is limited to an amount equal to the cost
of equipment and labor to achieve those energy savings, subject to a cap of
$0.60/square foot. Of the three areas, only an interim system-specific goal for lighting
is provided directly in the legislation and is valid until or unless the IRS issues a
different final regulation. It states that a deduction of $0.30 per square foot can be
taken if the lighting system employs dual switching (ability to switch approximately
one half of the lights OF
F and still maintain a fairly uniform light distribution) and
reduces installed lighting power consumption by at least 25% from values stated in
specifically cited tables in ASH
R
AE Standard 90.1
-2
00
1. As power savings increase
from 25% to 40%, the deduction increases proportionally up to $0.60 for a 40%
power savings as indicated in the following table:
Leviton Mfg. Co., Inc.
20497 SW Teton Ave., Tualatin, Oregon 97062 • Phone: [phone] • Fax: [phone]
Tech Line (8:00
AM – 5:00PM Pacific Time Monday-Friday): 1-800-864-2502
Visit our Website at: www.leviton.com