The Energy Policy Act of 2005 created the Commercial Buildings Deduction (CBD), an incentive consisting of an accelerated tax deduction rewarding investment in energy-efficient interior lighting; heating, ventilating and air conditioning/hot water systems; and building envelope.
Initially set to expire Dec. 31, 2007, the CBD was extended to Dec. 31, 2008, by Congress, and with passage of the economic recovery package in October, it now extends five more years to Dec. 31, 2013.
The CBD includes a tax deduction for reducing energy and power costs to at least 50 percent less than a building satisfying the ASHRAE 90.1-2001 standard. A partial deduction also is available for investments in interior lighting only. And the Interim Lighting Rule, which was supposed to be in effect only until the partial deduction rules were written, is still valid. Of the three CBD options, this route is the most straightforward because it deals only with lighting and can be calculated using a standard spreadsheet program, with no building energy modeling being required.
The Interim Lighting Rule enables owners of commercial buildings to deduct the full cost of new interior lighting, capped at 30–60 cents per square foot on a sliding scale, if the new lighting achieves a lighting power density (watts per square foot) that is 25–40 percent lower than the maximum values published in 90.1-2001’s Table 126.96.36.199 or Table 188.8.131.52. The exception is warehouses; the lighting system must reduce power density by at least 50 percent to earn a deduction of up to 60 cents per square foot.
Qualifying building types are listed in Table 184.108.40.206, although IRS Notice 2008-40 adds nonresidential unconditioned garage spaces to building types covered by the rule. Houses of worship, meanwhile, do not qualify because religious organizations are tax-exempt, and their buildings are not owned by the public.
Besides reaching a reduction in power density, three other conditions must be met. First, if the project triggers the controls provisions of ASHRAE 90.1-2001, it must comply with the provisions. Second, bilevel switching must be installed in all occupancies except hotel and motel guest rooms, store rooms, restrooms and public lobbies. And third, the application must meet the minimum requirements for calculated light levels as published in the ninth edition of the IES Lighting Handbook.
What is “bilevel switching”? The National Electrical Manufacturers Association (NEMA) has recognized a definition of bilevel switching as manual and/or automatic control that provides at least two levels of lighting power in a space—not including the off level—delivered by permanently installed lighting. This could involve lighting layers, A/B switching, and step or continuous dimming, with the control input being a switch, timer, photocontrol, occupancy sensor, lighting automation panel or some other device.
If the building is government-owned (doesn’t pay taxes), the designer (“person that creates the technical specifications for installation of energy-efficient commercial building property”) can claim the deduction, according to IRS Notice 2008-40. This could be an electrical contractor. If more than one designer is involved, the owner may allocate the deduction to the designer who was primarily responsible for the design or, at the owner’s discretion, among the designers.
For a building owner to claim the CBD, the project must be certified by a qualified individual—a contractor or engineer properly licensed as such in the jurisdiction where the building is located. This individual, who cannot be an employee of the building owner, must demonstrate in writing to the owner that he or she has the qualifications to do the certification.
According to IRS Notice 2008-40, the certification of an Interim Lighting Rule project must include a statement that the interior lighting achieves a suitable reduction in power density and satisfies the mandatory requirements for lighting controls and calculated light levels. It also must include a statement that a field inspection was performed by a qualified individual after the lighting was installed, in accordance with the procedures contained in “Energy Savings Modeling and Inspection Guidelines for Commercial Building Federal Tax Deduction” published in February 2007, and that the expected energy savings are being realized. Finally, it must include a list of energy-efficient lighting components, an explanation of these features, and projected lighting power density.
Note that although IRS Notice 2006-52 says the certification must include a statement that qualified computer software was used to calculate energy and power consumption and costs, this is not needed to demonstrate compliance with the Interim Lighting Rule. Instead, a spreadsheet or similar software can be used.
It has taken awhile, but the stars appear to have finally aligned for lighting opportunities available under EPAct 2005’s Commercial Buildings Deduction. The Interim Lighting Rule now can be implemented with all required pieces in place and an expiration in 2013.
Visit www.lightingtaxdeduction.org for more information.
DILOUIE, a lighting industry journalist, analyst and marketing consultant, is principal of ZING Communications. He can be reached at www.zinginc.com.