Energy-efficient buildings.

The Energy Policy Act of 2005 (EPA '05), enacted on Aug. 8, 2005, created a new deduction for expenses incurred for energy-efficient commercial buildings. Sec. 179D, as added by EPA '05 Section 1331, provides a major incentive for (1) building owners to upgrade their systems and (2) those building new structures to design them in an energy-efficient way.

New deduction: Under Sec. 179D(b) and (d), the maximum energy-efficient commercial building (EECB) deduction equals (1) $1.80 per building square foot (60 cents per building square foot, for certain separate building systems) less (2) the aggregate amount of EECB deductions allowed for the building for prior years. There is no overall per-building dollar limit on the deduction.

However, under Sec. 179D(c), the deduction is available only if the EECB property is:

* Otherwise depreciable or amortizable.

* Installed on or in any building located in the U.S. that is 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 North America.

* Installed as part of the (1) interior lighting systems; (2) heating, cooling, ventilation and hot water systems; or (3) building envelope.

* Certified as being installed as part of a plan designed to reduce the total annual energy and power costs for the building's interior lighting, heating, cooling, ventilation and hot water systems, by 50% or more in comparison to a reference building that meets the minimum requirements of Standard 90.1-2001 (as in effect on April 2, 2003). Detailed certification requirements must be met to qualify for the deduction; the IRS will issue regulations explaining how to measure the fuel savings targets.

Partial allowance: In general, under Sec. 179D(d), if a building does not meet the 50% energy savings test, a partial deduction is allowed for each separate building system that comprises energy-efficient property and that is certified by a qualified professional as meeting or exceeding the Service's applicable system-specific savings targets.

The commercial property's basis is reduced by the EECB deduction, under Sec. 179D(e). The deduction applies to property placed in service after 2005 and before 2008, according to Sec. 179D(h).