December 6, 2012

By CHUCK DUNCAN Special to the Journal

If you own commercial buildings or design public use structures that were put into service on or after Jan. 1, 2006, and you built them using energy efficient systems there is a very good chance the government is holding on to a pile of your money.

In 2005 the Bush administration signed the Energy Policy Act into law. The intent was to entice commercial property owners to use energy efficient lighting, HVAC systems and building envelopes in their structures.

What is not well known are the substantial tax deductions: A deduction of 60 cents per square foot per system is available.

If all three systems qualify we refer to it as “whole building” and equals a deduction of $1.80 per square foot. A partial credit is available if only one or two of the systems qualify: 60 cents or $1.20.

Keep in mind this is a deduction, not a credit.

Here is an example: Let’s say you own or designed a 200,000-square-foot structure that went into service on July 20, 2006. You used energy efficient systems in the construction. These systems would qualify the structure under IRS Rule 179d, but you never had the structure certified.

Your deduction could be as much as $1.80 X 200,000 sq/ft = $360,000. If you are in a 33 percent tax bracket the actual dollar advantage would be $118,000.

Even though the building went live in 2006 you can still have it certified and gain the tax advantage today. The fee should not exceed 6 cents per square foot, or $12,000.

What do you need to do to get your money back?

• Find a reputable engineering firm that specializes in energy certifications.

• Have all blueprints, schedules, plans and specifications available for analysis by the engineering firm you select. Keep in mind the IRS does not allow for self-certification, so you need to hire an independent non-affiliated firm.

• Agree to a fee for the certification. Fees will vary on price and how they are calculated.

• Have the engineering firm agree upfront that there will be no charge if none of the three systems qualify for a deduction

This should give the company you select most of what it needs to get started. The process will take anywhere from six to eight weeks.

Make sure the firm has a financial team available for advice. They should agree to defend the report in the event of an IRS challenge at no additional charge.

Chuck Duncan is with the Issaquah office of Capital Review Group, a Phoenix-based consulting firm that combines facility engineering with tax accounting.

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