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The
Energy Tax Incentives Act of 2005 provides significant tax breaks for
businesses that install energy savings equipment. Such businesses will be
entitled to generous energy tax credits or deductions. Like all tax laws,
there are rules that must be followed to benefit from the new energy tax
breaks. Some of them are quite complex.
Deduction
for energy-efficient commercial property. If you own commercial building property, you may be
entitled to an energy deduction for improving your building's energy
consumption. The maximum deduction is $1.80 per square foot of the building.
Several criteria must be met:
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The
property for which costs are claimed must be depreciable (or
amortizable) property, installed in a domestic building, and within the
scope of Standard 90.1-2001 of the American Society of Heating,
Refrigerating, and Air Conditioning Engineers and the Illuminating
Engineering Society of America;
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The
property must be installed as part of: the interior lighting system, the
heating, cooling, ventilation and hot water systems, or the building
envelope; and
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The
property must be installed based on a plan to reduce total annual energy
and power costs by 50 percent or more when referenced against a building
meeting certain minimum requirements (The IRS has been instructed to
issue rules to allow a reduced deduction if specific energy efficiency
targets are met but the 50-percent mark is not reached).
Business
solar investment tax credit. The business investment credit for solar energy property is increased
from 10 percent to 30 percent. The increased credit applies to (1) equipment
that uses solar energy to generate electricity, to heat or cool (or provide
hot water for use in) a structure, or to provide solar process heat, and (2)
equipment that uses solar energy to illuminate the inside of a structure
using fiber-optic distributed sunlight.
Credit
for qualified fuel cell property/stationary microturbines. Energy
property includes qualified fuel cell property and stationary microturbine
property for purposes of the business energy credit. The credit is 30
percent of the basis of qualified fuel cell property placed in service
during the tax year. The energy credit for any qualified fuel cell property
cannot exceed $500 for each 0.5 kilowatt of capacity.
Homebuilder's
credit for new energy-efficient homes. An eligible contractor may claim a tax credit of $1,000 or
$2,000 for a qualified new energy-efficient home that a person acquires from
the contractor during 2006 and 2007 for use as a residence during the tax
year. An eligible contractor is a person who constructs a new
energy-efficient home or a manufacturer that produces a qualified new
energy-efficient manufactured home. The credit applies to new homes and
those substantially reconstructed.
Effective
dates
The
energy tax incentives apply to property placed in service after December 31,
2005 and before January 1, 2008. Some complex issues surround these 2006 and
2007 benefits. Time of installation rather than payment controls. An
installation taking place now might still qualify for the credit if it is
not completed sufficiently to be substantially ready for use until 2006.
Maximizing
your tax benefits
There
are many tax benefits available in the Energy Act and myriad rules which, if
you are not careful, can prevent you from maximizing your savings.
Logistically, of course, you not only need to be aware of the many tax
rules, but also what improvements will maximize your energy savings, the
price for the improvements, and the availability of funds to make the
improvements.
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