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New tax breaks for energy conservation can translate into significant savings next year. The new energy-efficient commercial building deduction rewards businesses that invest in energy conservation. Businesses that switch to solar power can claim a new higher credit. The new tax breaks are part of the huge energy law Congress passed this summer. The benefits under the new law, however, don't start until January 1, 2006, allowing a few months for planning before going "live" but also posing a trap for those anxious to put energy-savings measure into use as quickly as possible.
Businesses must first develop a conservation plan that anticipates energy savings of 50 percent or more. The IRS has to approve the conservation plan. A reduced deduction may be available for energy-efficient improvements that are not part of a certified plan. The maximum deduction is $1.80 per square foot, less the total amount of deductions taken in any prior years.
The energy-efficient property must be installed as part of the building's:
To qualify for the full deduction, the energy conservation plan must target all of the heating, cooling, ventilation, and hot water systems.
The new energy law also rewards businesses that invest in solar power. The tax credit for solar energy jumps from 10 to 30 percent.
The higher credit applies to:
The IRS is currently writing guidance to explain the energy conservation tax incentives. It will likely publish that guidance later this year. In the meantime, give our office a call. We can start planning your energy conservation improvements and make sure you get the most out of these valuable new tax breaks. The energy-efficient commercial building deduction is temporary so you'll want to act soon to maximize your tax savings.