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Guide to the Energy Efficient Commercial Buildings Deduction
IntroductionAccording to the U.S. Department of Energy, lighting represents 40% of the average commercial building’s electric bill. Responding to demand for more-efficient solutions, the lighting industry developed a wide range of energy-efficient products that can significantly reduce lighting energy costs while maintaining or potentially improving lighting quality. In new construction, energy-efficient lighting is the norm due to tightening energy codes. In existing buildings, older, obsolete systems are being upgraded as availability of older systems is eliminated by product regulations. The Energy Efficient Commercial Buildings Tax Deduction was created to enhance the financial attractiveness of investing in the most energy-efficient lighting and other building technologies.
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THE ENERGY EFFICIENT COMMERCIAL BUILDINGS TAX DEDUCTIONThe Energy Efficient Commercial Buildings Tax Deduction (CBTD) is a special financial incentive created by the Energy Policy Act of 2005 and designed to reduce the initial cost of investing in energy-efficient lighting and other building systems via an accelerated tax deduction.
The CBTD expiration date has been extended twice, most recently by the Energy Independence Act of 2007 (EISA). With this extension, the CBTD can be claimed for qualifying projects completed before January 1, 2014.
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COMMERCIAL BUILDINGS TAX DEDUCTION (ALL SYSTEMS)For projects completed before January 1, 2014, a CBTD can be claimed that covers up to the entire deductible cost of investing in the installation of energy-efficient commercial building property, capped at $1.80/sq.ft.:
To qualify, EPAct 2005 and IRS Notice 2006-52 state:
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COMMERCIAL BUILDINGS TAX DEDUCTION (PARTIAL SYSTEMS)For projects completed before January 1, 2014, a CBTD can be claimed that covers up to the entire deductible cost of investing in the installation of energy-efficient commercial building property, capped at $0.60/sq.ft.:
To qualify, the project must be certified to reduce total annual energy and power costs to at least 10-25% less than a Reference Building satisfying the requirements of ASHRAE/IESNA 90.1-2001. These savings must be achieved solely through changes to one of the three qualifying building systems or features. The below target energy and power cost savings percentages, permitted under IRS Notice 2006-52, apply to projects completed between January 1, 2006 and December 31, 2008:
The below savings percentages, permitted under IRS Notice 2008-40, apply to projects completed between January 1, 2006 and December 31, 2013:
IRS Notice 2012-26 created alternate savings percentages, applicable as an additional savings option for projects completed between April 23, 2012 and December 31, 2013:
Tax deductions may be claimed for all three building systems ($0.60/sq.ft. for each) if they are verified to achieve the necessary energy and power cost reductions. However, the maximum allowable deduction cannot exceed $1.80 x the square footage of the building, minus any CBTD deductions claimed in prior years. The same limitation applies to multiple taxpayers that install energy-efficient property in the same building. In addition:
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COMMERCIAL BUILDINGS TAX DEDUCTION (“INTERIM LIGHTING RULE”)For projects completed before January 1, 2014, a CBTD can be claimed that covers up to the entire deductible cost of investing in the installation of energy-efficient commercial building property: 
Indoor lighting systems The total amount that can be deducted is capped at between $0.30 and $0.60/sq.ft on the below sliding scale based on a 25-40% reduction below the maximum allowable lighting power density (W/sq/ft.) in ASHRAE/IESNA 90.1-2001:
Unless the space is a warehouse, in which case the indoor lighting must achieve a 50% reduction in lighting power density to achieve a maximum deduction of $0.60/sq.ft. To qualify, EPAct 2005 and IRS Notice 2006-52 state:
And:
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BUILDING TYPES COVEREDCBTD projects must be within the scope of ASHRAE/IESNA 90.1-2001, which in turn applies to any building that is:
IRS Notice 2008-40 adds unconditioned attached or detached garage spaces to the list of space types qualifying for the CBTD under the Interim Lighting Rule, as long as it has walls and a roof and is not a single-family house, multifamily building with three or fewer stories above grade, or a manufactured house (mobile or modular home). Note that while religious buildings are within the scope of 90.1, they do not qualify for the CBTD because religious organizations are tax-exempt and their buildings are not owned by the public.
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WHO GETS THE CBTD
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PROJECT CERTIFICATION: ALL OR PARTIAL SYSTEMSThe process of certification of projects applying for the complete or partial-system CBTD is outlined in IRS Notice 2006-52. To qualify for the CBTD, the project must be certified that it will reduce the building’s total energy and power costs by a certain amount compared to a Reference Building. Only reductions caused by upgrading interior lighting, HVAC/hot water and building envelope can contribute to the CBTD; reductions in other energy uses, such as process loads, refrigeration and exterior lighting, do not count. A Reference Building is a building located in the same climate zone and otherwise comparable to the taxpayer’s building except its interior lighting, HVAC/hot water and building envelope meet the minimum requirements of ASHRAE/IESNA 90.1-2001. The energy performance of the Reference Building is determined using the Performance Rating Method in Appendix G of ASHRAE/IESNA 90.1-2004 as well as additional requirements from the 2005 California Title 24 Nonresidential Alternative Calculation Method Approval Manual. These procedures have been automated in several software programs recognized by the Department of Energy as being acceptable for CBTD projects. This analysis can be performed by any professional(s) that the owner would like to have perform it. Once the energy analysis demonstrates the necessary reduction in energy and power costs, the project must be certified by an engineer or contractor who 1) is properly licensed in the jurisdiction where the building is located, 2) doesn’t work for the taxpayer, and 3) has notified the taxpayer that he or she has the requisite qualifications to certify the project. According to IRS Notice 2006-52, the certification must contain contact information for the certifier, address for the taxpayer’s building, and a statement that:
NEMA has published a series of boilerplate certification letters here. While the taxpayer does not need to attach the certification to their tax return, they must by law keep sufficient records to demonstrate they are entitled to the CBTD and in the designated amount.
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PROJECT CERTIFICATION: INTERIM LIGHTING RULEThe process of certification of projects applying for the CBTD under the Interim Lighting Rule is outlined in IRS Notice 2008-40. To qualify for the CBTD, the project must be certified to reduce interior lighting power density by 25-40% below the maximum allowances published in ASHRAE/IESNA 90.1-2001, while meeting other requirements related to controls and light levels. Note that although IRS Notice 2006-52 says qualified computer software must be used to calculate energy and power consumption and costs, this is not needed to demonstrate compliance with the Interim Lighting Rule. Instead, a spreadsheet or similar software can be used to simply compare lighting power density for the Proposed Building versus ASHRAE/IESNA 90.1-2001. This analysis can be performed by any professional(s) that the owner would like to have perform it. Once a suitable reduction in lighting power density is demonstrated, the project must be certified by an engineer or contractor who 1) is properly licensed in the jurisdiction where the building is located, 2) doesn’t work for the taxpayer, and 3) has notified the taxpayer that he or she has the requisite qualifications to certify the project. According to IRS Notice 2008-40, the certification must contain contact information for the certifier, address for the taxpayer’s building, and a statement that:
NEMA has published a series of boilerplate certification letters here. While the taxpayer does not need to attach the certification to their tax return, they must by law keep sufficient records to demonstrate they are entitled to the CBTD and in the designated amount.
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This special tax deduction allows building owners (or tenants) to write off the complete cost of upgrading a building’s indoor lighting, HVAC/hot water and building envelope in the year the new equipment is placed in service, capped at $1.80/sq.ft. Alternately, the owner (or tenant) could upgrade one of these three systems to earn the CBTD capped at $0.60/sq.ft. In short, with the CBTD, the cost of new lighting or other building systems can be claimed in a single tax year instead of amortized over a period of years. 
These buildings may include, but are not limited to, automotive facilities, convention centers, court houses, bars, cafeterias, fast food restaurants, family restaurants, dormitories, exercise centers, gyms, hospitals and other healthcare facilities, hotels and motels, libraries, manufacturing facilities and warehouses, workshops, motion picture theaters, multifamily buildings, museums, offices, parking garages, penitentiaries, performing arts theaters, police/fire stations, post offices, retail establishments, schools and universities, sports arenas, town halls and transportation facilities. 
