Expert Advice on Green Buildings

LED Lighting and Section 179d Tax Deductions: Everything You Need to Know

   
Question:

David asks: We are strongly considering changing out all our fluorescent bulbs throughout our entire building (offices, warehouse, cafeteria, restrooms, etc.) with LED lighting. Can you please explain all the benefits (reduction of energy, tax deductions, etc) and what 'has to happen' in order to take advantage of the 179D? Also, if we decide to bypass the ballast in our existing fixtures, opposed to changing out the fixtures, with the lights still be UL approved, and can we take advantage of the 179D by doing so? Lastly, Bi-level Switching is very confusing to us. What is the minimum we can do to get away with this? We need the lights on all day, so bi-level won't be exercised -- in order to get the tax deduction, what can we do?

Answer:

David, I’m assuming that your building will be pursuing the partial deduction of $0.60/sf for lighting improvements only, since you made no mention of HVAC or envelope improvements over baseline. The extent of improvements you pursue will have an impact on the maximum deduction you can claim through 179D since to qualify for the full deduction, the cost reduction plan must target all the systems specifically identified in Sec. 179D(c)(1)(D).

As you know, the Energy Policy Act of 2005 (EPAct), added new Sec. 179D to the United States Code Title 26, Internal Revenue Code. Sec. 179D, the “Commercial Building Tax Deduction” provides an immediate tax deduction for the cost of energy-efficient improvements to commercial property designed to save energy through envelope, HVAC and lighting system improvements. The Emergency Economic Stabilization Act of 2008 (HR-1424), approved and signed on October 3, 2008, extends the benefits of the Energy Policy Act of 2005 through December 31, 2013. These tax deductions are available for systems “placed in service” from January 1, 2006 through December 31, 2013.

Sec. 179D(d)(1) provides a partial allowance if a taxpayer replaces one of the systems allowed under Sec. 179D(c) (1)(c), and the replacement meets the target for that system. However requirements for demonstrating improvement over ASHRAE Standard 90.1 remain the same as for the full deduction, as far as I’m aware.

Interim rules for Lighting systems state that the lighting system target minimum shall be a reduction of lighting power density of 25% (50% for warehouse spaces) of the minimum requirements in Table 9.3.1.1 or Table 9.3.1.2 of ASHRAE/IESNA Standard 90.1-2001.

If, with respect to the lighting system, reduction of lighting power density doesn’t meet the minimum, only the applicable percentage of the amount of deduction is allowed. To determine the tax deduction /ft2 based on lighting power density reduction, the formula below can be used (http://www.lightingtaxdeduction.com/f5.html):

Applicable percentage = 50% + [50% x ((% reduction of LPD - 25%) / 15%)]

The result is multiplied against the maximum cap, which is $0.60, to determine the actual maximum deduction per square foot.

Subsection (f) does not apply to systems in which the controls and circuiting do not comply fully with the mandatory and prescriptive requirements of Standard 90.1-2001 and which do not include provision for bi-level switching in all occupancies except hotel and motel guest rooms, store rooms, restrooms, and public lobbies, or systems that do not meet the minimum requirements for calculated lighting levels as determined by IESNA Lighting Handbook, Performance and Application, Ninth Edition, 2000.

Most importantly, to take advantage of this deduction, the project must be certified by a professional recognized as qualified to do so.

In addition to the obvious benefit of the tax deduction, installing LED lighting will also result in reduced energy consumption (the reason behind the tax credit), and come with a plethora of benefits. They typically last longer than fluorescents, are very durable, operate cool, are mercury free, and end up being quire cost-effective for a number of applications.

Unfortunately I can’t comment on the UL listing, since I’m not really an expert in lighting systems and the UL listing system is somewhat complicated, but from what I’ve read I don’t see any reason you couldn’t take advantage of 179D by bypassing the ballast (I’d check 90.1 for any mention of UL listing to be sure), but as long as you’re achieving the desired energy reduction I think you’d be okay.

The definition of bi-level switching can vary from state to state. Typically bi-level switching is either an automatic or manual (sometimes both) method of controlling lighting systems to provide two levels of lighting power for a space to save energy (typically estimated to be 10-15% annually). This obviously doesn’t include ‘off’ as one of the levels, and can be satisfied by dimming and also must meet the requirements of the jurisdictional codes which may also require bi-level switching.

The International Energy Conservation Code (IECC) requires at if the space meets any of the criteria below, then it must have bi-level switching.

· Has more than one light fixture

· Is not controlled by an occupancy sensor

· Is not a corridor, storeroom, restroom or public lobby

· Has a lighting power density (lighting W/sq.ft.) >0.6W/sq.ft.

· Is not a guestroom/sleeping unit

IECC defines bi-level switching as providing occupants the ability to reduce lighting load in a reasonably uniform pattern by at least 50%, and recognizes four methods

1. Controlling all lamps or fixtures (e.g., dimming or light level switching)

2. Dual switching alternate rows, fixtures or lamps

3. Switching middle lamp independent of outer lamps (3-lamp fixtures)

4. Switching each fixture or each lamp

Hope this helps!
Sarah Gudeman, LEED AP

Expert Advice and Comments

90.1 tax lighting incentive

I am considering pursuing 90.1 partial lighting incentives as part of an apartment energy upgrade package.

Exterior lighting upgrades are not eligible for the tax deduction, but does the code distinguish between apartment living areas and common areas?

ahackman's picture

re: apartments

Steve,

I work with a national company that does 179D verification. How tall is your building out of curiosity? Garden style apartments can not benefit from this deduction.

Be happy to talk to anyone about their projects.

As for financing opportunities, always check to see what the state offers in the way of incentives. In NJ, there are several options. Having this knowledge sweetens the pie.

Anna Hackman, LEED AP
Sustainable Pathway Consulting
Green Talk, a green living website
www.green-talk.com