The Consolidated Appropriations Act, 2021 makes permanent the energy efficient commercial buildings deduction.

Energy efficient commercial buildings deduction. A deduction is allowed for all or part of the cost of energy efficient commercial building property placed in service as part of a building’s:

  • interior lighting systems,
  • heating, cooling, ventilation, and hot water systems, or
  • envelope

The property must be installed as part of a certified plan to reduce the total annual energy and power costs of these systems by at least 50 percent in comparison to a reference building that meets specified minimum standards.

The maximum cost of energy-efficient commercial building property that may be deducted in any tax year is limited to the product of $1.80 and the square footage of the building, over the total deductions, claimed for energy-efficient commercial building property in any prior tax years.

In other words, the deduction is the lesser of:

  1. the cost of the energy efficient commercial building property placed in service during the tax year or
  1. the product of $1.80 and the square footage of the building, reduced by all deductions claimed with respect to the building in any prior tax years.

The factor in the calculation of the maximum amount of the deduction ($1.80) will be adjusted for inflation for tax years beginning after 2020.

The deduction is claimed by the person entitled to depreciate the property (e.g., the owner of the building or a lessee who pays for and installs the property). The deduction reduces the depreciable basis of the building and is treated as a depreciation deduction for recapture purposes.

Contact Us

Please contact our office for information on how you may be able to take advantage of this credit or any other tax relief under the Consolidated Appropriations Act, 2021.