If you are looking for a little help getting approval for a commercial lighting project you found it! A tax law change may be the added incentive to get that project approval across the finish line.
What is the Commercial Buildings Energy Efficiency tax deduction? The 179D – Commercial Buildings Energy Efficiency Tax Deduction primarily enables building owners to claim a tax deduction for installing qualifying systems such as energy-efficient lighting and buildings. Tenants may be eligible if they make construction expenditures. In effect since January 1, 2006, and initially a temporary incentive, it is now a permanent program enacted as part of the Consolidated Appropriations Act of 2021 signed into law on December 2020.
Who qualifies? Here are types of buildings that can qualify:
- Retail buildings
- Office buildings
- Industrial buildings
- Warehouses
- Government-owned (city, state or federal) buildings including schools, airports, town halls, state colleges, etc.
- Apartment buildings (greater than 4 stories)
How it works – the details. A tax deduction of $1.80 per square foot is available to owners of new or existing buildings who install (1) interior lighting; (2) a building envelope; or (3) heating, cooling, ventilation, or hot water systems that reduce the energy and power cost of the interior lighting, HVAC, and service hot water systems by 50% or more in comparison to a building meeting minimum requirements set by ASHRAE Standard 90.1. Cost savings must be calculated using qualified software.
Deductions up to $0.60 per square foot are available to owners of buildings in which individual lighting, building envelope, or heating and cooling systems partially qualify by meeting certain target levels or through the interim lighting rule.
SUMMARY OF 179D TAX DEDUCTIONS FOR PROPERTIES PLACED INTO SERVICE ON OR BEFORE DECEMBER 31, 2020 | ||||||
| Fully Qualifying Property | Partially Qualifying Property | Interim Lighting Rule | |||
IRS Notice (Effective Dates) | Envelope | HVAC and HW | Lighting | |||
Savings Requirements* | 50% | 2012-26 | 10% | 15% | 25% | 25%–40% lower lighting power density (50% for warehouses) |
Tax Deduction (not to exceed cost of qualifying property) | $1.80/ft² |
| $0.60/ft² | $0.60/ft² | $0.60/ft² | $0.60/ft² times applicable percentage** |
How it works – example. Let’s take a look at how this works using a typical project. You are looking to upgrade the old metal halide lights in your facility with energy-efficient LED high bay lights. Energy-efficient LEDs will reduce consumption by 60% while increasing light levels, reducing maintenance costs, and qualifying you for a utility rebate (depending on your location) for upgrading. However, now you can apply for additional savings on the Section 179 D Tax Code.
100,000 sq ft warehouse lighting upgrade:
Cost of doing LED Upgrade | $65,000 |
Utility Rebate | $25,000 |
Total Cost (after Utility Rebate) | $40,000 |
PLUS, up to a $.60 cents/sq ft per Section 179D Deduction | $57,000 |
Who wouldn’t approve this project with numbers like that!
We can help. This was a quick look at the Commercial Buildings Energy Efficiency tax deduction. It is an IRS government program, and like other governmental programs, it is not without its challenges. While folks at CSL are not tax professionals, we are lighting experts and are ready to help navigate through all the potential cost savings with your next commercial lighting project. Take the first step – Let’s Talk.