To reduce your tax bill, conserve your energy.

The Energy Tax Incentives Act (ETIA) of 2005, which created more than $14 billion in tax breaks for businesses and consumers, offers significant tax benefits to home builders, home owners, and commercial building owners who make their properties more energy efficient. Tax breaks are also available for energy efficient appliances and environmentally friendly vehicles.

Though ETIA is a federal initiative, the credits afforded by the bill are particularly important in the Northeast because of the region's above-average utility rates and the difficulty in building new power plants to meet the growing energy needs.

Real estate developers can take advantage of tax incentives by improving the energy efficiency of their own facilities and by building energy efficient residential properties for others in order to gain valuable tax credits.

A major benefit of the new federal act allows commercial building owners to claim an immediate deduction for the cost of qualifying depreciable property placed in service this year or in 2007. To qualify, the depreciable property must be installed as part of the interior lighting systems; heating, cooling, ventilation, and hot water systems; or the building envelope, such as insulation, roofing, windows and doors.

The qualifying item must also be certified as part of a plan designed to reduce annual energy and power costs by at least 50% in comparison to a standard reference building. The maximum deduction available can be calculated by multiplying the building's square feet by $1.80, while a partial deduction is available for certain improvements that fall short of the 50% target.

Virtually all commercial buildings are eligible for this credit. A commercial building includes office buildings, retail buildings, warehouses, and rental housing of four stories or more. In addition, publicly owned buildings are eligible, because, the credit can "pass through" to the individual primarily responsible for the building's design.

In addition to the federal credit, the state of New York has enacted business and individual credits to encourage the use of solar energy systems. The business credit for qualified fuel cell electric generating equipment is up to $1,500 per unit and for clean fuel refueling property, up to 50% of the cost of the qualified property. In addition, as of September 2005, there is no sales tax or compensating use tax on the sales and installation of solar energy systems.

Beyond fixed property, numerous credits are also available for energy efficient vehicles and appliances. Starting in 2006, the federal act replaces the clean fuel vehicle deduction with a more valuable credit for new vehicles leased or purchased for either personal or business use. This will benefit owners of hybrid, advanced lean-burn technology, fuel-cell powered and other alternative fuel vehicles.

Taxpayers can also claim a credit for installing alternative fuel storage and dispensing units or electric vehicle recharging equipment.

The federal act offers many more potential tax benefits related to energy-efficient products, practices and construction methods. Developers that familiarize themselves with these incentives can generate valuable benefits for themselves.

While the rules to qualify for and calculate the various credits and deductions are complex, taking advantage of them and using expert tax advice is a smart business decision in an era in which rapidly evolving energy issues are likely to remain at the forefront of regional policy discussions.

BY MARC WIEDER, CPA, PARTNER, ANCHIN, BLOCK & ANCHIN LLP