Energy Efficient Commercial Buildings Deduction for building designers

Building designers that participated in the design of energy efficient government-owned buildings in the last three years may be eligible to claim the Energy Efficient Commercial Buildings Deduction.

What is the Energy Efficient Commercial Buildings Deduction?

Enacted as part of the Energy Policy Act of 2005, this provision encourages building owners to increase energy efficiency in new and remodeled buildings by providing an immediate tax deduction for costs incurred that increase the energy efficiency of a building.

For government-owned buildings, a special provision exists that allows the owner to allocate the deduction to the building’s designer for the taxable year that the property is placed in service. This is an attractive benefit for building designers because they can receive a tax benefit without incurring any building construction costs.

Building designers eligible to claim this deduction include:

  • Architects
  • Engineers
  • Contractors
  • Environmental consultants
  • Energy services providers

How much is the deduction?

The maximum deduction is $1.80/square foot of building space. In order to achieve the maximum deduction, the building must achieve a reduction in energy cost of at least 50 percent in total energy and power costs, as compared to a "reference building." Additionally, a partial deduction is available of up to 60¢/square foot per system for buildings where the overall building does not meet the 50 percent energy savings threshold. In these instances, the individual systems for which the deduction is claimed must meet various reductions in energy usage.

What types of buildings qualify?

New construction of a commercial building of any size qualifies. New construction of residential rental buildings, such as apartments, qualifies if they are four or more stories. Additionally, renovations and retrofits of existing structures are also eligible to receive the deduction. Buildings must be located in the United States.

How can Baker Tilly assist you?

Because regulations allow building owners to award the deduction to one designer or allocate it among several designers, building designers should preserve their deductions. Even if you have another tax compliance provider, Baker Tilly can help you secure this deduction and maximize the amount of the deduction for your firm.