Energy efficiency tax credits that took effect Jan. 1 are slated to end before most commercial property owners will even have time to take full advantage, but a real estate advocacy group is working to extend the program beyond its two-year sunset.
The Energy Policy Act of 2005 established a commercial buildings tax deduction for building owners that improves the energy efficiency of their property’s exterior shell, climate control or lighting systems. Because the Act doesn’t specify how a building’s energy performance will be measured, the Building Owners and Managers Association (BOMA) has been working with federal agencies to draft regulations. The Internal Revenue Service is expected to publish its guidance for the Energy Efficient Commercial Buildings Tax Deduction as early as today.
Unfortunately for most property owners, the window to complete improvements and qualify for the break closes on Dec. 31, 2007. That may be enough time to switch to energy-efficient lighting, but is insufficient time to design and execute an HVAC replacement in a large office building. “While we appreciate the effort, a two-year window is just not going to work for us,” says Karen Penafiel, BOMA International’s assistant vice president for advocacy.
That’s why BOMA is lobbying lawmakers to extend the program to the end of 2010. U.S. Sen. Dianne Feinstein (D-Calif.) is expected to propose the extension in a measure this year.
Under the current Energy Policy Act, a property can qualify for a tax break equal to either the cost of improvements, or to $1.80 per sq. ft. of the subject property – whichever is smaller. The $1.80 is actually broken down into three components that can be earned separately, each as a break of 60 cents per sq. ft. Those components are lighting, climate control, and the building envelope (or exterior).
“Energy efficient upgrades aren’t just a tax deduction benefit,” Penafiel says. “After the improvements, you have reduced operating costs for the lifetime of the improvement.”