Buried within the 2,124 pages of the U.S. Consolidated Appropriations Act, 2021, starting on page 1858, Section 102 “Energy Efficient Commercial Buildings Deduction,” the IRS has reinstated a tax deduction for commercial building owners who place qualifying energy-efficient systems in service, which “shall apply to taxable years beginning after December 31, 2020.” The tax deduction is now permanent. It also includes a new section which allows the deduction to be adjusted annually for inflation. Installation and energy savings deductions are possible based on facility square footage.
Installation Deductions. A tax deduction of $1.80 per square foot is available to owners of new or existing buildings who install (1) interior lighting; (2) building envelope, or (3) heating, cooling, ventilation, or hot water systems that reduce the building’s total energy and power cost by 50% or more in comparison to a building meeting minimum requirements in the most recent ASHRAE Standard 90.1 (at this time 90.1-2019 is accepted by the federal government). Energy savings must be calculated using qualified computer software approved by the IRS.
Energy Savings Deductions. Deductions of $0.60 per square foot are available to owners of buildings in which individual lighting, building envelope, or heating and cooling systems meet target levels that would reasonably contribute to an overall building savings of 50% if additional systems were installed.