Post-Occupancy Evaluations

By Craig DiLouie | Jan 15, 2013




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The Energy-Efficient Commercial Buildings Tax Deduction (CBTD) was created by the Energy Policy Act of 2005 to encourage investment in energy-efficient interior lighting, HVAC/hot water systems and the building envelope.

The CBTD’s expiration, originally set for 2007 and subsequently extended to 2008, was later pushed to Dec. 31, 2013. Just before this column was written, the Commercial Buildings Modernization Act was introduced in the Senate and would extend the CBTD to 2016 with new features and larger rewards.

While larger rewards may sound tempting, delay carries risk. The efficiency targets in the proposed legislation will be stricter. And, of course, knowing Congress, there is no guarantee the bill even becomes law.

First, a recap of the CBTD that has been in effect. The CBTD, covered in Section 179D of the tax code, provides an accelerated tax deduction as an incentive for investing in three energy-efficient building features. “Accelerated” means, instead of taking the deduction over a period of years as required by tax law, the owner can take the entire deduction in a single year, subject to a cap.

Owners who achieve certain efficiency targets for all three building systems can earn up to $1.80 per square foot, while owners who achieve individual efficiency targets per system can earn up to $0.60 per square foot. Achieving the complete building and partial system deduction requires energy modeling using qualified software. A third, simpler path is the Interim Lighting Rule, which is more popular for retrofit because it is not as costly and cumbersome.

The Interim Lighting Rule provides an accelerated deduction covering the cost of new interior lighting up to $0.30 to $0.60 per square foot, corresponding on a sliding scale to 25 to 40 percent savings below the lighting power densities in Table or Table of the ASHRAE/IES 90.1 2001 energy standard.

This means if Standard 90.1 2001 establishes a maximum allowable interior lighting power density of 1.3 watts (W) per square foot for office buildings, and new office lighting achieves a power density of 0.9W per square foot, that 30 percent savings translates to a cap of $0.40 per square foot.

Warehouses are an exception; the new lighting must reduce power density by at least 50 percent to qualify for a deduction capped at $0.60 per square foot.

New buildings designed to energy codes based on the latest generation of energy standards automatically qualify for an accelerated deduction. For example, a school complying with ASHRAE/IES 90.1 2010 has a lighting power density that is 33 percent lower than ASHRAE/IES 90.1 2001. In retrofits, for the purpose of qualifying for the CBTD, the new system is compared to 90.1 2001, not the existing system. Although incorporating bilevel switching into existing spaces may be challenging, many upgrades qualify using commercially available technologies.

Building types that qualify for the deduction are listed in Table, although IRS Notice 2008-40 adds nonresidential unconditioned garages. Houses of worship do not qualify because religious organizations pay no taxes and the public does not own the buildings. In the case of government buildings, the designer (which may be multiple parties) can claim the deduction, according to the rules in Notice 2008-40.

Besides realizing a reduction in power density, for a project to qualify for the CBTD under the Interim Lighting Rule, bilevel switching must be installed in all occupancies except hotel and motel guest rooms, storerooms, restrooms, public lobbies and garages. This might include A/B switching or step or continuous dimming. In addition, the application must satisfy the minimum light level requirements in the Ninth Edition of the IES Lighting Handbook.

For an owner to claim the CBTD, a qualified individual—namely, a contractor or engineer properly licensed as such in the jurisdiction in which the building is located and who is not an employee of the building owner—must certify the project. This individual must demonstrate in writing he or she has the qualifications to do the certification.

The project certification 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 must also state the project was performed by a qualified individual, after the new lighting was installed, according to procedures in the National Renewable Energy Laboratory’s technical report, “Energy Savings Modeling and Inspection Guidelines for Commercial Building Federal Tax Deduction,” and that the expected energy savings are being realized. Finally, it must list all energy-efficient lighting components, explain these features and include the projected lighting power density. Any software can be used to detail the savings.

The new Senate bill would increase the maximum deduction to $3 per square foot, allow the CBTD to be allocated to third parties in more situations and cover exterior lighting. The baseline standard (ASHRAE/IES 90.1 2004, then later 2007) will be tougher to beat. If it becomes law, the new CBTD will be covered in detail in a future column.

For more on the current CBTD, visit

About The Author

DiLouie, L.C. is a journalist and educator specializing in the lighting industry. Learn more at and


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