Federal tax incentive programs for commercial energy efficiency improvements under the Energy Policy Act.
The Energy Policy Act of 2005 (EPAct 2005) — later extended by the Emergency Economic Stabilization Act of 2008 — introduced significant federal tax incentives for commercial building owners who invest in energy-efficient systems. Understanding the difference between a credit and a deduction is key to appreciating their value.
A tax credit reduces what you owe dollar-for-dollar. A deduction only reduces the income on which tax is calculated — making credits the more valuable of the two.
EPAct 2005 includes a provision allowing a tax deduction of up to $1.80 per square foot for building owners who invest in qualifying energy-efficient systems. For a 50,000 square foot facility, that represents up to $90,000 in potential deductions — a meaningful offset against the cost of upgrades to lighting, HVAC, or building envelope systems.
