Businesses, Builders, Commercial Tenants, Appliance Makers Can Lower Their Federal Taxes with Energy-Efficiency

Washington, D.C., June 2009 – Business owners, residential and commercial property builders, and commercial building owners and tenants who increase the energy efficiency of their properties can enjoy lower federal income tax bills, advises the Tax Incentives Assistance Project (TIAP), a coalition of public interest nonprofit organizations, government agencies, and other entities that promote energy-efficiency.

Federal tax breaks also are available to manufacturers of energy-efficient clothes washers, refrigerators, and dishwashers, as is a 10 percent investment tax credit for combined heat and power (CHP) properties with systems smaller than 50 megawatts (MW).

The duration of each of these tax incentives varies and can be found, along with other pertinent information, on the TIAP website.

“The federal tax incentives are a critical key to improving the efficiency of the largest energy-using sector of our economy – buildings – which account for roughly 40 percent of total U.S. energy use and carbon emissions,” noted Kateri Callahan, president of the Alliance to Save Energy, a TIAP founding partner.

Steve Nadel, executive director of the American Council for an Energy-Efficient Economy (ACEEE), also a TIAP founder, commented, “Now is the time to act on energy-efficiency investments. These federal tax incentives will help businesses reduce their operating costs and improve their bottom line while also cutting carbon emissions to stabilize our climate.”

Commercial Buildings
Businesses can take a tax deduction for new or renovated buildings by reducing the energy costs associated with three components – the lighting system, the building envelope, and the heating, cooling, and water-heating equipment. To qualify for the deduction, buildings must meet the ASHRAE 90.1-2001 standard and must be placed in service (be ready and available for use) by December 31, 2013.

The organization that makes the expenditures is generally the recipient of the deduction, which can be taken in the year the building is placed in service. In the case of a public building, the designer may take the deduction. The building must be certified by a qualified individual (a licensed engineer or contractor) as meeting the energy cost savings goal.

The deduction is available at three levels:

• Buildings that save at least 50 percent of projected annual energy costs across all three system components are eligible for a tax deduction of $1.80 per square foot.
• Buildings that save a specified percentage of projected annual energy costs for one of the three components – building envelope (10 percent whole building energy savings), lighting (20 percent), or heating and cooling (20 percent) – are eligible for a $0.60 per square foot deduction.
• For lighting improvements that reduce lighting use by 25-40 percent and also employ dual switching (ability to switch roughly half the lights off and still have fairly uniform light distribution), the $0.60 per square foot may be prorated, ranging from $0.30 per square foot for 25 percent lighting energy savings to $0.60 per square foot for 40 percent savings.

New Homes
Builders of new homes placed in service through December 31, 2009, that exceed national model energy codes by 50 percent, subject to certification, are eligible for a $2,000 federal tax credit. The credit is available for homes (including both site-built and manufactured homes) projected to save at least half of the heating and cooling energy of a comparable home that meets the standards of the 2003 International Energy Conservation Code, including supplements.

Manufactured home producers that exceed national model codes by 30 percent or qualify for the federal ENERGY STAR Homes program are eligible for a $1,000 credit.

Qualifying homes feature a range of innovative design and construction methods that increase energy efficiency, including better-insulated foundations, walls, and ceilings; high-efficiency windows; well-sealed framing and air ducts; high-efficiency heating and cooling systems; and other innovative design and construction methods.

Combined Heat and Power
Owners of combined heat and power (CHP) systems smaller than 50 MW may take advantage of a 10 percent investment tax credit for the first 15 megawatts of CHP property placed into service through December 31, 2016. To qualify, a CHP system must be 60 percent efficient and produce at least 20 percent of its useful energy as electricity and at least another 20 percent as useful thermal energy.

An investment tax credit is a reduction in either overall individual or overall business tax liabilities and may also be applied to the alternative minimum tax. CHP system owners/users cannot take the credit until the year that the system is operational; and only the original constructor or user of the CHP property may take the tax credit.

This year’s economic stimulus legislation also provides the option for businesses to take a grant from the U.S. Treasury Department during 2009 and 2010 in lieu of the investment tax credit. 

“Combining the CHP credit with other federal or state energy credits may reduce the amount of one of more of the credits,” Nadel noted. “The IRS provides formulas for understanding the impact of these other ‘subsidized energy financing’ mechanisms. TIAP advises taxpayers to consult a tax professional for more information.”

Appliances
Energy efficiency tax credits also are available to manufacturers of high-efficiency refrigerators, clothes washers, and dishwashers produced in 2008, 2009, and 2010.

“While consumers cannot take the appliance tax credits directly, they may benefit by knowing which models qualify,” Callahan observed. “They may find that manufacturers, state energy offices, and/or utilities are having special promotions for those models.”

Credits are available in a tiered system depending on the efficiency of the model and the date of manufacture:

Clothes Washers

• $75 for residential top-loading models manufactured in 2008 which meet/exceed a 1.72 modified energy factor (MEF) and do not exceed an 8.0 water consumption factor.
• $125 for residential top-loading models manufactured in 2008 or 2009 which meet/exceed a 1.8 MEF and do not exceed a 7.5 water consumption factor
• $150 for residential or commercial clothes washers manufactured in 2008, 2009, or 2010 which meet/exceed a 2.0 MEF and do not exceed a 6.0 water consumption factor.
• $250 for residential or commercial models manufactured in 2008, 2009, or 2010 which meet/exceed a 2.2 MEF and do not exceed a 4.5 water consumption factor.

Refrigerators

• $50 for models manufactured in 2008 that consume at least 20 percent but not more than 22.9 percent fewer kilowatt hours per year than the 2001 energy conservation standards.
• $75 for models manufactured in 2008 or 2009 that consume at least 23 percent but no more than 24.9 percent fewer kilowatt hours per year than the 2001 energy conservation standards.
• $100 for models manufactured in 2008, 2009, or 2010 that consume at least 25 percent but not more than 29.9 percent fewer kilowatt hours per year than the 2001 energy conservation standards.
• $200 for models manufactured in 2008, 2009, or 2010 that consume at least 30 percent less energy than the 2001 energy conservation standards.

Dishwashers

• $45 for dishwashers manufactured in 2008 or 2009 which use no more than 324 kilowatt hours per year and 5.8 gallons of water per cycle.
• $ 75 for dishwashers manufactured in 2008, 2009, or 2010 which use no more than 307 kilowatt hours per year and 5.0 gallons of water per cycle (5.5 gallons per cycle for dishwashers designed for greater than 12 place settings).

The credit to manufacturers of qualifying clothes washers, refrigerators, and dishwashers is capped at $75 million for the period 2008-2010, with the exception of the most efficient refrigerators (30 percent) and clothes washers (2.2 MEF/4.5 water consumption factor). Those models are not subject to the cap.

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The Tax Incentives Assistance Project (TIAP), sponsored by a coalition of public interest nonprofit groups, government agencies, and other organizations in the energy-efficiency field, is designed to give consumers and businesses information they need to make use of the federal income tax incentives for energy-efficient products and technologies passed by Congress as part of the Energy Policy Act of 2005 and amended by subsequent legislation.