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Tax Incentives for Energy Efficiency

Energy legislation passed into law over the past several years has created a number of tax incentives for energy-efficiency upgrades and new equipment purchases. Expiration dates are looming for some of these incentives; others have been extended (and restricted in scope) by subsequent legislation, and pending regulations may alter these programs further. This article examines the status of these tax incentives and their affect on future energy-efficiency investments.

Commercial Building Tax Deduction
The Commercial Building Tax Deduction created by the Energy Policy Act of 2005 is currently available through December 31, 2013. Commercial building owners can claim the deduction for energy-efficiency expenditures incurred on eligible commercial buildings. Eligible projects must be installed in, or on, a building that is within the scope of ASHRAE Standard 90.1-2001 Energy Standard for Buildings Except Low-Rise Residential Buildings and certified to be part of a plan to reduce total energy consumption by 50% in relation to the ASHRAE standard. The deduction covers all energy-related expenses subject to a cap of $1.80 per square foot of building space. Partial deductions will be allowed for improvements in interior lighting, HVAC and hot water systems, and building envelope systems. For more details about the deduction, see Internal Revenue Service (IRS) Notice 2006-52.

In February 2011, President Obama introduced the Better Buildings Initiative, which calls for a plan to redesign the current commercial building tax deductions establishing a more generous tax credit that will encourage more building owners to retrofit their properties.

Energy-Efficient New Homes Tax Credit for Home Builders
This tax credit applies to new, energy-efficient homes built by December 31, 2011. Builders can claim a tax credit of up to $2,000 for new homes that reduce heating and cooling energy consumption by 50%, relative to the International Energy Conservation Code standard. While the tax credit initially expired after 2009, it was temporarily renewed and extended by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Residential Energy-Efficiency Tax Credits
The Federal tax credit for home energy-efficiency improvements was established under the Energy Policy Act of 2005 and extended through 2011 by subsequent legislation. The credit now applies to eligible equipment purchased between January 1, 2009, and December 31, 2011. For purchases made in 2011, the total credit amount is limited to $500. Taxpayers that have claimed credits of $500 in previous years are ineligible for this credit. The total amount for purchases made in 2009 and 2010 is limited to $1,500.

You can view more about tax incentives here.

(Copy provided by Duke Energy.)

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