Dear LightingTaxDeduction.org,

What if a commercial building tenant performs a retrofit that would meet the energy savings. Would they get the CBTD? Is the CBTD for privately owned buildings restricted to the owner, or can a management company or a tenant in a leased space take advantage of it as well?

Answer: Unfortunately, as in many matters of tax law, the answer is not necessarily clear. The entity that receives the CBTD is the entity that owns the asset for tax purposes. Although in many, if not most, instances, a tenant improvement will revert to the landlord at the end of a lease, the property is not necessarily owned by the landlord for tax purposes. It is a question of fact, and the determination depends on the arrangements between the parties. If the tenant pays for the investment, constructs it according to its own specifications, and there are no concessions in the lease or from the landlord, it is likely that the tenant will be the owner of the improvements for tax purposes and eligible to claim the CBTD.

Fortunately, this is a question that arose under the tax law before the enactment of the CBTD provision. In the case of tenant improvements, the tenant and landlord would have to determine who the tax owner is for purposes of claiming depreciation deductions in any event. The CBTD does not change that determination. The CBTD simply provides a more beneficial deduction that that normally provided by depreciation.

The analysis is the same regarding improvements in government buildings. If the contractor is the owner for tax purposes, it can claim the CBTD. Whether a private person can be an owner of property with respect to a government building under the applicable local law is a factor that would have to be taken into account in determining who the owner is for tax purposes.

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