Federal tax deduction covers cost of greening

Uncle Sam wants businesses to be more energy-efficient, and continues to refine a little-known tax deduction to help in that effort.

Section 179D of the federal tax code was launched in 2005, as part of the Energy Policy Act, to allow businesses that own or lease commercial buildings to deduct some of the cost of making that space greener. Companies that cut the cost of lighting, heating, cooling, ventilation and other building systems by 50 percent could get a one-time deduction on their taxes of $1.80 per square foot. To claim the deduction, businesses had to get certification of energy savings.

“The deduction is a great way for people to get something from the government for doing something that’s right for the environment and for their business,” said Mike Noyes, senior manager at the Clifton Gunderson LLP accounting firm in Denver and an engineer.

Since cutting energy costs by half proved to be difficult for some businesses, the Internal Revenue Service subsequently added another level of deduction.

In 2006, the IRS said businesses reducing those costs by 16 2/3 percent in any of three basic systems — interior lighting, heating/air conditioning or building envelope — can get a deduction of 60 cents per square foot. A building envelope includes walls, doors, roof, etc.

“On a 100,000-square-foot building, that’s a $60,000 tax deduction on something you’ve already done. … We have one client who’s gotten $300,000 to $400,000 for making schools it works on more energy-efficient,” Noyes said.

Read the full story in the Denver Business Journal.