The federal Energy Policy Act of 2005 ("EPAct") was executed by President Bush on August 8, 2005. The EPAct is over 1,700 pages long and includes numerous provisions relevant to real estate development.
Although the EPAct addresses numerous aspects of the United States energy policies, many of the tax credits and other incentives available under the EPAct are related to the construction of new homes and commercial buildings, the installation of various energy saving technologies in new or existing buildings, and other tax credits and incentives related to real estate development. Generally, many of the incentives and credits provided by the EPAct are only available during 2006 and 2007. The following is an overview of some of the provisions of the EPAct relevant to various aspects of real estate development.
- New Homes. The EPAct provides tax credits for home builders of up to $2,000 for new homes with annual heating and cooling energy consumption less than half of homes built according to the 2003 International Energy Conservation Code ("IECC"). For homes meeting the 50% criteria, at least 10% of the savings (one-fifth of 50%) must be obtained through building envelope improvements.
- Manufactured Homes. The EPAct provides a $1,000 tax credit for manufacturers of manufactured homes that use 30% less energy under the IECC or that meet the then-current ENERGY STAR criteria for manufactured homes.
- New Commercial Buildings. The EPAct provides a tax deduction of up to $1.80 per square foot ($19 per square meter) for new, energy efficient commercial buildings that reduce annual energy and power consumption by 50% compared to the 2001 new construction standard developed by the American Society of Heating, Refrigeration and Air-Conditioning Engineers ("ASHRAE").
- New and Existing Commercial Buildings. The EPAct provides a partial deduction of $0.60 per square foot for owners of new and existing buildings for upgrading up to two major building systems (envelope, lighting, or heating, ventilation and air conditioning ("HVAC")) so that they are 50% more efficient that ASHRAE standards.
- Federal Buildings. The EPAct requires new federal buildings to use 40% less energy than the minimum requirements of the ASHRAE standard or the IECC standard. The EPAct also requires that by 2015 the energy consumption of existing federal buildings be reduced to 20% below 2003 levels.
- Business Energy Credits. The EPAct provides a tax credit to businesses for the cost of the purchase and installation of qualified fuel cells (30%), stationary microturbine power plants (10%), and solar systems (30%).
- Lighting. The EPAct provides interim rules allowing a deduction of $0.30 per square foot for buildings or portions of buildings that reduce energy consumption for lighting by 25% relative to the ASHRAE lighting power density requirements and that use bi-level switching. The credit increases to $.60 per square foot for systems with a 40% savings and that use bi-level switching.
- Heating, Cooling and Water Heaters. The EPAct provides tax credits for highly efficient, new central air conditioners, heat pumps, furnaces, water heaters windows, and furnaces and boilers installed in 2006 or 2007, and used in non-business applications.
- Residential Solar and Fuel Cell Credits. The EPAct provides a 30% credit capped at $2,000 for the purchase of residential solar systems and fuel cells. This is the first federal financial assistance for the purchase of residential solar systems in 20 years. A credit of 30% of the cost, or $1 per watt, is provided for homeowners who install stationary fuel cells.
- Energy Efficiency Standards for Appliances. The EPAct requires the development of new energy efficiency standards to be developed for many items including compact fluorescent lamps, mercury vapor light ballasts, external power supplies, illuminated exit signs, commercial air conditioning and heating equipment, commercial refrigerators and freezers, commercial ice makers, and commercial clothes washers.
- Natural Gas Distribution Lines. The EPAct may encourage the construction of new natural gas distribution lines because the act revises the depreciation period for natural gas distribution lines from 20 years to 15 years.
TAX ADVICE DISCLAIMER: Any federal tax advice contained in this communication was not intended or written to be used, and it cannot be used, by you for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein. If you would like such advice, please contact us.