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In 2005, President George Bush signed the United
States Energy Policy Act. This legislation gives
financial incentives to residential contractors and
commercial building owners that build energy efficient
homes and buildings. By using energy efficient building
materials such as structural insulated panels (SIPs),
builders and contractors can qualify for a $2000 tax
credit on residential homes or up to a $1.80 per square
foot tax deduction on commercial buildings.
PROVISIONS
Homebuilders are eligible for a $2,000 tax credit for
a new energy efficient home that achieves fifty percent
energy savings for heating and cooling over the 2003
International Energy Conservation Code (IECC) plus 2004
supplements. At least one fifth of the energy savings
must come from building envelope improvement, achieved
through higher levels of insulation and air sealing. A
SIP building envelope delivers high R-value insulation
while reducing air leakage, making SIPs an ideal option
for meeting this requirement.
A tax deduction of up to $1.80 per square foot is
available to owners (or designers, in the case of
government-owned buildings) of new or existing
commercial buildings. To qualify owners must
demonstration that the building was constructed or
reconstructed to save at least 50% of the heating,
cooling, water heating, and interior lighting energy
cost that meet ASHRAE Standard 90.1-2001. Partial
deductions of up to $.60 per square foot can be taken
for comparable reductions from any one of three building
systems—the building envelope, lighting, or heating
and cooling system—that meets goals consistent with
achieving the fifty percent savings for the entire
building.
TAX CREDIT VS TAX DEDUCTION
Tax credits, as compared to tax deductions, directly
reduce the amount of income tax owed. Tax deductions
reduce the amount of income subject to tax.
HOW TO QUALIFY AND APPLY HOME TAX CREDIT
To receive the $2000 tax credit for homes, the
builder must follow the guidelines set out in IRS
Notice 2006-27. To do so, the home must undergo an
inspection from an energy rater certified through the
Residential Energy Services Network (RESNET).
The Internal Revenue Service has created IRS
Form 8908 to guide contractors through applying for
the tax credit.
HOW TO QUALIFY AND APPLY FOR COMMERCIAL TAX
DEDUCTION
Owners of commercial buildings must follow the
procedures listed in IRS
Notice 2006-52.
This notification provides guidance for full and
partial deductions on new commercial construction and
renovation. Since the financial incentive is a tax
deduction, the Internal Revenue Service will continue to
use standard forms to apply it to your taxes each year.
Please consult a tax professional to learn how you can
maximize your deduction.
PARTIAL DEDUCTIONS
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 for each
separate building system that is certified by a
qualified professional as meeting or exceeding the
applicable system savings targets of the $1.80 per
square foot commercial tax credits. The applicable
system savings targets are those that would result in a
total annual energy savings of fifty 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:
- Interior lighting system
- Heating, cooling, ventilation, and hot water
systems
- Building envelope
For more information on partial deductions, consult IRS
Notice 2006-52.
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