If you were hesitant about switching to LED, there’s another good reason to complete a lighting retrofit.
Lawmakers extended the tax benefit for businesses who make energy efficient building upgrades when they passed the bill that sent stimulus checks to millions of Americans.
But that’s not the only good news.
The commercial buildings tax deduction, also referred to as 179D, Section 179D, or EPAct179D, is permanent.
Previously, the deduction expired at the end of every year. It was a waiting game to see whether or not lawmakers passed the benefits for the next year.
Now, you don't have to worry if you'll be able to deduct savings from a lighting retrofit. The tax deduction is in place for years to come.
There are other significant changes, too. Here’s how Section 179D changed when the President signed the COVID-19 stimulus package:
- Lighting retrofits (and other building upgrades) completed in 2020 are eligible for tax deductions
- Tax deductions for energy efficient improvements permanently extended
- $1.80 per square foot tax deduction will grow each year by inflation
- Projects are compared to ASHRAE standards that existed two years before construction started
The tax deductions are retroactive, so if you completed a lighting retrofit anytime between 2006 and now, it’s time to get your paperwork together.
What is Section 179D?
The Energy Policy Act (EPAct) was created in 2005. It went into effect January 1, 2006 and primarily provides tax savings for building owners who improve energy savings in new construction or remodel projects.
The goal of EPAct was to incentivize energy reduction. The U.S. Department of Energy says commercial buildings are responsible for half of all building energy consumption in the United States.
Section 179D outlines tax deductions available for commercial buildings. It's a tremendous help to businesses that install energy saving alternatives, like lighting retrofits.
The maximum tax deduction is outlined as $1.80 per square foot of the upgraded space.
That’s comprised of three different partial deductions:
- $.60 per square foot for interior lighting
- $.60 per square foot for building envelope improvements
- $.60 per square foot for HVAC system upgrades
To put this in perspective, a 100,000 square foot building that qualifies for maximum deductions could receive a $180,000 tax credit.
Under the new regulations, that credit will increase every year to account for inflation.
Of course, not every building will qualify for the maximum deduction, but that shouldn’t discourage you from applying. Partial deductions can still result in significant savings.
Resources to learn more about Section 179D:
Qualifications for commercial building tax deductions
There are several qualifications your business needs to meet in order to receive the tax deductions outlined in 179D.
As a general rule, EPAct 179D applies to commercial buildings that include the following:
- Retail buildings
- Apartment buildings four stories or higher
- Office buildings
- Industrial buildings
To get the full deduction of $1.80 per square foot, energy and power costs need to be reduced by 50% compared to ASHRAE Standard 90.1-2007 (or 90.1-2001 for buildings or systems placed in service before January 1, 2018).
Partial deductions are also available based on the project and energy reduction. Even energy reductions of 10% can equal major savings.
The building owner qualifies for the deductions, unless the building is owned by the federal, state, or local government. In that case, the company responsible for the system's design may take the deduction.
What does EPAct 179D mean for your business?
179D is designed to encourage businesses to make energy efficient improvements to their properties.
Even if you completed a lighting retrofit years ago, it’s important to check for this benefit. Projects dating back to January 1, 2006 could be eligible for deductions.
To be clear, we're not tax experts, but this could result in a significant financial impact for your organization.
If you do not oversee the tax returns for your company, make sure to pass this along to those that do and keep them in the loop.
If you want to start planning your LED upgrade for 2021, don't hesitate to contact us. We'd be happy to help you walk through the process.