What is the Energy Efficient Commercial Buildings Deduction, Form 7205?

• Owners of qualified commercial buildings
• Designers of energy-efficient property or retrofit property for buildings owned by certain tax-exempt entities

Energy-efficient properties must be:

• Depreciable for income tax, and be located in the United States
• Part of a system for interior lighting, HVAC, or hot water systems, or the building envelope
• Certified by a qualified person as reducing total annual energy and power costs by 25% compared to standard

Energy-efficient retrofit properties are:

• Depreciable for income tax
• Located in the United States
• Placed in service less than five years before the plan to retrofit is in place for the building
• Installed on or in any qualified building
• Part of a system for interior lighting, HVAC, or hot water systems, or the building envelope
• Certified as being installed under a qualifying retrofit plan

The  Energy Efficient Commercial Buildings Deduction amount depends on the project’s energy savings percentage (which must be 25% or more) and the square footage of the applicable building. Starting with tax year 2023, there’s a 5x bonus if prevailing local wages and apprenticeship requirements are met. The following table summarizes this.

Note: The deduction can’t be more than the cost of the installed property, and the amount per square foot may be reduced for deductions claimed in previous years.

Example 1: energy savings of 35% for a 10,000 square-foot building will have a deduction amount of: $2.00 x 0.35 x 10,000 = $7,000.

Example 2: wage and apprenticeship compliant energy savings of 55% for a 10,000 square-foot building will have a deduction amount of: $5.00 x 10,000 = $50,000.

For tax years prior to 2023 the maximum deduction is $1.80 per square foot (indexed for inflation after 2020) for buildings with 50% energy savings. See Amount of the deduction for 2022 and before for details.

Before claiming the deduction, you must have a detailed energy efficiency certification of the project from a qualified in-state engineer or contractor.

You claim the deduction by completing Form 7205 and attaching it to the income tax return for your business. Information you will need to provide includes:

• The address of the building or buildings
• The date the property was placed in service
• The energy savings percentage
• The building's square footage
• Amounts for prior-year claims, if any
• Details about the qualified person who certified the project’s energy efficiency

The deduction is claimed by:

• Individuals and single-member LLCs on Form 1040, Schedule C, Line 27b
• Partnerships and multi-member LLCs on Form 1065, Line 20 
• S corporations on Form 1120S, Line 19
• Corporations on Form 1120, Line 25

Currently, Form 7205 isn't supported in TurboTax Business Live Assisted. You can add the form by going into Forms Mode and entering the deduction on the appropriate line. But here we’ll describe how you are still able to easily attach the Form 7205 to your TurboTax Live Assisted Business tax return, Form 1065 or Form 1120S, once you’ve filled out Form 7205 in your web browser.

1. Ensure you have completed the sections for Business Info and the applicable income section, accessible from the left menu of TurboTax Live Assisted Business.
2. Under Federal, select Deductions.
3. On the Your Deductions page, under Business Expenses, at Common Business Expenses, select Start.
4. On the Enter Your Common Business Expenses page, enter your expense amount for Energy Efficient Commercial Buildings Deduction, and select Continue.
5. In your web browser, go to Form 7205 and complete the form. For detailed IRS help, see Instructions for Form 7205.
   • If you’re using the Google Chrome browser, select the Download icon then With your changes.
   • If you’re using the Safari browser, select File and then select Save as.
   • In either browser type, at the Save As popup, ensure the Save as type is *.pdf and then select Save, noting the filename and location.
6. In TurboTax Business Live Assisted, under Federal, select Other.
7. Continue until you arrive at the Attachments required screen.
8. Select the Upload button for Form 7205.
9. On the Attach Your PDF Document screen, select Browse.
10. At the Open pop-up, locate the Form 7205 PDF file that you recently downloaded, then select it and select Open.
11. Your screen will now say Upload successful! ‌Form 7205 is now attached to your return as per IRS requirements.