Federal Tax Incentive Overview

• The Commercial Buildings Deduction allows the owner to write off a sizable portion of the cost of a lighting upgrade, capped at $0.60/sq.ft., in the taxable year that the lighting is placed in service.
• Federal Tax is reduced by accelerating depreciation of capital asset investments in Energy Efficiency Lighting Systems.
• Initially allowed in tax years 2006, 2007 and 2008.

Now extended through December 31, 2013!

• Allowed for investments in new lighting systems in NEW or EXISTING buildings that meet energy efficiency requirements
  • Benefit goes to businesses that own the asset and pay federal taxes.
  • New lighting systems must meet energy Building Energy Code requirements.
  • Consult with your accountant to file for tax deduction.

From January 1, 2009 until the Treasury Department issues final regulations defining savings targets for individual building systems, the Commercial Buildings Deduction’s Interim Rules for Lighting Systems are in effect. The Interim Rules offer an accelerated tax deduction that is the lesser of:

• The complete cost of installing energy-efficient interior lighting; or
• $0.30 to $0.60/sq.ft. proportional to lighting power density (LPD), calculated as watts per square foot) savings of 25-40% below 90.1-2001, as shown in the below sliding scale.

So if you reduce an office building’s LPD to say 33% below the minimum required value in Standard 90.1-2001, then the owner could write off the complete cost of the new lighting, capped at $0.46/sq.ft.

If there is an amount of cost left over after the cap, then it is depreciated and claimed normally. For example, if a lighting upgrade in a 100,000 sq.ft. commercial office building costs $100,000 and the cap is $0.60/sq.ft., then $60,000 could be written off in the tax year the new lighting is placed in service. The remaining $40,000 would then be written off in the traditional manner—that is, capitalized and depreciated over time beginning in the same year placed in service.

‘‘(f) INTERIM RULES FOR LIGHTING SYSTEMS.—Until such time as the Secretary issues final regulations under subsection (d)(1)(B) with respect to property which is part of a lighting system—
‘‘(1) IN GENERAL.—The lighting system target under subsection (d)(1)(A)(ii) shall be a reduction in lighting power density of 25 percent (50 percent in the case of a warehouse) of the minimum requirements in Table 9.3.1.1 or Table 9.3.1.2 (not including additional interior lighting power allowances) of Standard 90.1– 2001.”

‘‘(2) REDUCTION IN DEDUCTION IF REDUCTION LESS THAN 40 PERCENT.— ‘‘(A) IN GENERAL.—If, with respect to the lighting system of any building other than a warehouse, the reduction in lighting power density of the lighting system is not at least 40 percent, only the applicable percentage of the amount of deduction otherwise allowable under this section with respect to such property shall be allowed. ‘‘(B) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A), the applicable percentage is the number of percentage points (not greater than 100) equal to the sum of— ‘‘(i) 50, and ‘‘(ii) the amount which bears the same ratio to 50 as the excess of the reduction of lighting power density of the lighting system over 25 percentage points bears to 15.”