Most people are turned off by the idea of spending money on robust lighting systems, such as LEDs, in order to gain huge savings in energy consumption and spending. In most cases, these folks are not aware that businesses can take a massive tax deduction for installation costs related to such purchases. The Energy Policy Act of 2005 was created for this sole purpose – to help qualified businesses and building owners reap the benefits of energy efficient lighting equipment without burning a hole in their wallet.
This policy is supported by the National Electrical Manufacturers Association (NEMA) and the Natural Resources Defense Council (NRDC). Such provisions can be found under the “Energy Efficient Commercial Buildings Tax Deduction,” which is part of IRC Code Section 179D. Other names for this deduction includes Commercial Building Deduction or 179D deduction.
Currently, this tax incentive is in full effect. Government officials passed legislation that restored this policy for 2015 up to December 31, 2016. It is important to note that this benefit is not a credit – it is a deduction.
Qualifying for 179D
Qualifying for this incentive is a straightforward process. As long as your business (specifically, the building) meets criteria set forth by the IRS, you should have no problem participating in the program. The first criteria to meet is the location of the building. It must be located in the United States. Furthermore, newly constructed commercial buildings of any size qualifies for this deduction. For residential rental buildings or apartments, the structure must have a minimum of four stories to qualify. Such deductions are applicable to existing or new building owners, who install the following equipment: lighting systems, building envelope or HVAC systems.
For government-owned buildings, the owner may “allocate” the deductions to other individuals responsible for the overall “design” of the structure, under a specific provision. This includes engineer, contractor, architect or energy services provider.
Under this program, it is possible to get up to $1.80 per-square-foot (maximum) of space inside the applicable building. Reaching this threshold comes with meeting strict energy saving requirements. The building must be capable of reducing energy costs by 50 percent (minimum), based on yearly energy/power costs. The building’s level of savings will be compared to a building that meets minimum requirements established by ASHRAE Standard 90.1-2001 (for buildings and systems placed in service before January 1, 2016) or 90.1-2007 (for buildings and systems placed in service before January 1, 2017).
Buildings that do not meet requirements for maximum deductions can still benefit from partial deductions. Deductions of $0.60 per-square-foot are offered to qualified buildings that cannot meet the 50 percent energy savings benchmark. Leveraging the “Interim Lighting Rule,” buildings that reduce energy costs by 25 percent (25-40 percent lower lighting power density) may qualify for the minimum deduction of $0.60 per-square-foot.
Calculating and Making Deductions
Calculating for energy savings must be completed by a qualified professional, i.e., an engineer or licensed contractor holding jurisdiction in the location of the building, as defined in Treasury Guidance. This individual must not be related to or have close ties with the business or party attempting to make or qualify for the incentive. The certification process must be conducted via IRS-approved software program (like the official 179D DOE Calculator, for buildings placed in service before January 1, 2016), which is used to calculate for 179D energy savings.
Is it Worth the Hassle?
The short answer is yes. According to the US Department of Energy, lighting costs make up roughly 40 percent of a commercial building’s energy bill. Other major energy components include HVAC at 40 percent and “other equipment” at 20 percent. Investing in energy-efficient luminaries can generate up to 45 percent ROI, which would allow such systems to pay for themselves after roughly 2.2 years (based on statistics from the Energy Cost Savings Council).
Most commercial businesses are simply not well informed when it comes to tax benefits surrounding energy efficient fixtures. As mentioned earlier, many groups are held back by the initial costs of updating old commercial luminaries and the necessary labor required during installation. Because of this, only 20 percent of current commercial establishments are utilizing upgraded lighting systems. The remaining 80 percent are still using outdated lighting components that were installed before 1986 (according to data from the Department of Energy).
The Energy Efficient Commercial Buildings Tax Deduction is the solution to “cushioning” or dealing with overwhelming costs related to investing in energy efficient lighting technologies. While this policy has been extended, reinstated and revised in the past, businesses should take a proactive approach in leveraging such tax incentives for maximum benefits.
Larson Electronics Lighting Equipment
The first step to taking advantage of these tax deductions is purchasing commercial luminaries for your business. Knowing that you can write off some of your investments should give you confidence in getting back your money in a timely manner. Even if you don’t get the full deduction, energy efficient fixtures, like LEDs, will eventually pay for themselves from a long-term perspective.
Check out the selection of lights below for more information about commercial fixtures:
- Class I, II, III, Division 1 and 2
- LEDs, metal halide, fluorescent models
- High bay, tube-style, portable fixtures
- Marine grade, waterproof, shock-resistant
- Extensive selection of energy efficient commercial fixtures
- 50,000+ hour rated lifespan (LEDs)
- Several mounting and voltage options
- Sturdy housings and casings available
- 2-5 stage light masts
- Explosion proof, solar powered models available
- LED and metal halide options
- Easy deployment and storage features
- Skid mounted, temporary and dolly cart mounted
- Battery powered models available
- Explosion proof, weather proof options
- NEMA 3R, UL 1640 approved