March 21, 2011

Energy Efficient Taxpayers: Take Advantage of Additional Energy Deductions Under Revenue Procedure 2011-14

Energy Efficient Taxpayers: Take Advantage of Additional Energy Deductions Under Revenue Procedure 2011-14 Tax & Business

In January, the IRS issued Revenue Procedure 2011-14, which makes it possible for taxpayers to take tax deductions under Internal Revenue Code Section 179D (energy-efficient building property) by way of an automatic “change of accounting” method. This procedure makes it easier and less costly to take deductions for energy-efficient commercial building properties. Under the Procedure, taxpayers can now automatically change the method of accounting to deduct amounts paid or incurred for the installation of energy-efficient commercial buildings improvements.

In practice, the deduction is permitted in the tax year during which the property was placed in service. The change of accounting method is applied in the 2011 tax year, and the deductions could potentially reach back as far as the 2006 tax year. Previously, if a taxpayer wanted to take this deduction for properties placed in service during prior years, prior year tax returns would need to be amended. This methodology could be expensive and rather burdensome. Now, under this new Procedure, taxpayers can instead change their accounting method and simply adjust the current year’s income and expense, and make adjustments on the current year tax return only. Another major advantage of this revision is that taxpayers can reach back and get deductions as far back as the 2006 tax year. Previous rules permitted amending returns only up to 3 prior years.

Under Revenue Procedure 2011-14, the basis of the property is reduced by the amount of the Section 179D deduction, and the remaining basis is depreciated over its recovery period. The change applies to:

  • Energy-efficient commercial building property that is installed on or in any building that is located in the US and is within the scope of ASHRAE Standard 90.1-2001;
  • Energy-efficient commercial building property that is installed as part of the interior lighting systems; the heating, cooling, ventilation, and hot water systems; or the building envelope of a commercial building; and
  • Property for which the taxpayer has retained certification that the interior lighting systems, HVAC, and hot water systems, or building envelope will reduce the total annual energy and power costs with respect to combined usage of the building’s HVAC, hot water, and interior lighting systems by 50 percent or more as compared to a reference building that meets minimum requirements of Standard 90.1-2001.

In order to make the change, the taxpayer must attach a statement with a detailed description of tax treatment of the property under the present and proposed methods and certification required demonstrating that the property does indeed qualify for the deduction.

Please contact your Marcum LLP Tax Professional to find out how these changes might affect your business today.

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