Commercial Lighting Tax Deductions            Â
For years, energy-efficient lighting solutions have been available that can reduce lighting energy costs while maintaining or potentially improving lighting quality. According to the Energy Cost Savings Council, energy-efficient lighting projects generate an average 45% return on investment, paying for themselves in just 2.2 years. Due to energy codes and its economic advantages, energy-efficient lighting is now a common feature in new construction; lighting is generally considered the easiest, most profitable investment in energy-saving building systems.
According to the Department of Energy, however, only 20% of existing commercial buildings feature some degree of upgraded lighting technology, while 80% continue to operate lighting systems installed before 1986. The reason typically given is initial cost of changing out an older lighting system and replacing it with a newer one. Energy-efficient lighting typically costs more to purchase and necessitates skilled labor for its installation.
The Energy Efficient Commercial Buildings Tax Deduction was created to enhance the financial attractiveness of investment in the most energy-efficient lighting and other building technologies.
THE ENERGY EFFICIENT COMMERCIAL BUILDINGS TAX DEDUCTION
The Energy Efficient Commercial Buildings Tax Deduction (CBTD) is a special financial incentive created by the Energy Policy Act of 2005 and designed to reduce the initial cost of investing in energy-efficient lighting and other building systems via an accelerated tax deduction.
This special tax deduction allows building owners (or tenants) to write off the complete cost of upgrading a building’s indoor lighting, HVAC/hot water and building envelope in the year the new equipment is placed in service, capped at $1.80/sq.ft. Alternately, the owner (or tenant) could upgrade one of these three systems to earn the CBTD capped at $0.60/sq.ft. In short, with the CBTD, the cost of new lighting or other building systems can be claimed in a single tax year instead of amortized over a period of years.
The CBTD expiration date has been extended twice, most recently by the Energy Independence Act of 2007 (EISA). With this extension, the CBTD can be claimed for qualifying projects completed before January 1, 2014.
Tax Deduction Versus Tax Credit
A tax deduction is a cost subtracted from adjusted gross income when calculating taxable income; tax liability is not reduced dollar for dollar, as is the case with a tax credit, but instead in proportion to the taxpayer’s tax bracket.
BUILDING TYPES COVERED
CBTD projects must be within the scope of ASHRAE/IESNA 90.1-2001, which in turn applies to any building that is:
- wholly or partially enclosed within exterior walls (or within exterior and party walls) and a roof, providing shelter to people, animals or property; or
- is an unconditioned attached or detached garage space as referenced by Tables 9.3.1.1 and 9.3.1.2 of Standard 90.1-2001; and
- is not a single-family house, multifamily structures three stories or fewer above grade, or a manufactured house (mobile or modular home).
These buildings may include, but are not limited to, automotive facilities, convention centers, court houses, bars, cafeterias, fast food restaurants, family restaurants, dormitories, exercise centers, gyms, hospitals and other healthcare facilities, hotels and motels, libraries, manufacturing facilities and warehouses, workshops, motion picture theaters, multifamily buildings, museums, offices, parking garages, penitentiaries, performing arts theaters, police/fire stations, post offices, retail establishments, schools and universities, sports arenas, town halls and transportation facilities.
IRS Notice 2008-40 adds unconditioned attached or detached garage spaces to the list of space types qualifying for the CBTD under the Interim Lighting Rule, as long as it has walls and a roof and is not a single-family house, multifamily building with three or fewer stories above grade, or a manufactured house (mobile or modular home).
Note that while religious buildings are within the scope of 90.1, they do not qualify for the CBTD because religious organizations are tax-exempt and their buildings are not owned by the public.
