FAQs – EPAct 179D Explained

EPAct 2005…explained
Tax incentives available for efficient lighting

The Energy Policy Act of 2005, or EPAct 2005, is an attempt to combat growing energy problems. The act changed US energy policy by providing tax incentives and loan guarantees for energy production of various types.
EPAct created the Energy Efficient Commercial Buildings Deduction, which allows building owners to deduct the entire cost of a lighting or building upgrade in the year the equipment is placed in service, subject to a cap.
Here are some frequently asked questions about EPAct, the answers will help you to better understand the law and see how you may benefit from it:

Q. What is the maximum deduction available for a lighting system upgrade?

A. Sixty cents per square foot (.60 p/sq.ft) or the cost of the retrofit, whichever is less.

Q. What qualifies for an EPAct Tax Deduction?

A. New construction or lighting renovations. Buildings located in the US, placed into service after December 31, 2005 and prior to January 1, 2013.

The deduction cannot exceed the capital expenditure for the energy-efficient lighting system, and will reduce the cost basis of the equipment for depreciation purposes.
For public entities such as schools, hospitals, or government offices, the deduction may be assigned to the person primarily responsible for designing the lighting.

Q. Who is qualified to certify that a commercial building meets all of the requirement of the tax incentive?

A. According to the IRS, a qualified individual is: 

1. Not related (within the meaning of s45(e)(4)) to the taxpayer claiming the deduction under s179D;

2. An engineer or contractor who is properly licensed as a professional in the jurisdiction in which the building is located.

3. Able to provide the taxpayer in writing that he or she has the requisite qualifications to provide the certification required under this notice (in the case of an individual providing the certification) or to perform the inspection and testing described in the notice (in the case of an individual performing the inspection).




Q. Is the incentive a tax deduction or a tax credit?

A. It is an accelerated tax deduction for any capital improvement. The provision allows for a company to write off a significant portion of a capital investment in an energy efficient lighting system in the year it was installed.

IRS rules for writing off investments in long term capital assets varies, but can be as long as 39 years. The ability to immediately deduct almost the full cost of a capital investment such as a lighting system provides a significant financial incentive to a for-profit company.

Q. Is the incentive only for existing buildings?

A. The deduction is available for new and existing building structures.

Q. Do lighting upgrades for outdoor spaces such as parking lots qualify for the tax deduction?

A. No. The EPAct tax deduction is only for the interior of buildings, not for outdoor lighting. However, an indoor parking garage would qualify. There is another way to offset parking lot lighting upgrades through the use of “Bonus Depreciation Tax Deduction”

Q. Is it possible to apply for a tax deduction for only a portion of a building?

A. Yes. For example, if a certain portion of the building is clearly defined as a manufacturing area, it should be possible to apply the manufacturing lighting standards in this area if other areas of the building do not qualify.

Q. Can I take the allowed tax deduction no matter how much I spent on the lighting upgrade?

A. No. You can only take the permitted tax deduction up to the value of the asset. In this case, the lighting equipment and associated installation labor. You cannot take a deduction for more than you spend.

Q. Are there any necessary functionality requirement to qualify for the tax deduction?

A. Yes. Bi-level switching is required for all spaces except in the following areas: Lobbies, Motel/Hotel guest rooms, and Stock Rooms.

Q. Can non-profit organizations still take a tax deduction if the lighting qualifies?

A. Not Directly… In any case, the deduction shall go to the person primarily responsible for redesigning the property in lieu of the owner of such property. This may allow the designer of the lighting retrofit, such as an energy services company, to bid lower on certain projects.

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