In June 2006, the U.S. Internal Revenue Service issued an advance copy of a notice on how commercial building owners or leaseholders can qualify for a federal tax deduction by making their buildings more energy efficient.

The commercial building deduction, which was enacted in the Energy Policy Act of 2005, allows taxpayers to deduct the cost of energy-efficient improvements installed in commercial buildings through December 31, 2007. The amount deductible may be as much as $1.80 per square foot of building floor area for buildings where energy use is cut by half. Buildings that fall below that target can still earn a deduction of 60 cents per square foot if the energy use is cut by one sixth.

Before claiming the deduction, taxpayers must obtain a certification that the required energy savings will be achieved, and the Internal Revenue Service notice describes how to obtain that certification.

In most cases, the builder (or designer in the case of publicly-owned buildings) can take the deduction in the year the property was placed in service. The building or system must be certified, with inspection and testing, as meeting the energy cost savings goal according to guidance issued by the IRS. Key provisions in the guidance include the following:

• Certifications must be done by “qualified individuals”.......licensed engineers or contractors.
• Certifications for energy savings shall be in accordance with the procedures in Appendix G of ASHRAE Standard 90.1-2004©, supplemented with several provisions in the 2005 California Title 24 Nonresidential Alternative Calculation (ACM) Approval Manual.