Tax Benefits for Installing Energy Efficient Lighting

Published June 2021 by Madison Anonick

Incentives You May Qualify For When Upgrading to Energy Efficient Lighting

By: Angel Cassen – Finance Manager – The Retrofit Companies, Inc.

Taxes | There are many things to consider when upgrading to energy efficient lighting and taxes. Reducing energy consumption, cutting down on that energy bill, and reduced maintenance are all obvious perks to a lighting retrofit or lighting upgrade project. Tax incentives (and rebates!) are additional factors that often make or break a decision to move forward with a lighting project.

Below are a few tax incentives and resources that your business may* or may not qualify for when considering energy efficient lights.

*Please be sure to consult with your CPA as everyone’s tax situation is unique.

Learn more about what our lighting customers had to say about their energy efficient projects on our Lighting Case Studies page.

Retrofit Lighting & Design

179D: Energy Efficient Commercial Buildings Deduction

Sec. 179D is a popular tax incentive, which was recently made permanent as part of the 2021 Consolidated Appropriations Act. Projects such as upgraded interior or exterior lighting systems may qualify to claim this tax deduction of up to $0.60 per square foot. To qualify, you must reduce the energy and power costs of a building by 25%. 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.

Qualified Buildings Include:

  • Commercial Buildings
  • Warehouses
  • Parking Garages
  • Multifamily properties (with four stories or more)
  • Government-Owned Buildings
  • Public Universities
  • Libraries
  • and more!

Every lighting project is unique, and sometimes only portions of a project qualifies, depending on the overall design and a variety of other factors. Your project may also qualify for unique rebates – see our post on 2021 Rebates.

To find out if your project qualifies for 179D tax incentives please reach out to one of our Lighting Experts at 800-795-1230, or email info@retrofitcompanies.com

You may also schedule a consultation with one of our Lighting Experts by filling out a quick form and someone will get back to you ASAP.

Qualified Improvement Property (QIP) – 100% Bonus Depreciation & Section 179

LED lighting installed on nonresidential buildings may qualify for an immediate write-off using 100% bonus depreciation or Section 179, provided the lighting is installed after the building is in service. This allows companies to deduct the full cost of eligible investments immediately, rather than spreading the deduction over a number of years.

Bonus depreciation is set to phase-out beginning in calendar year 2023. The maximum immediate deductions will be:

  • 80% for property placed in service in 2023
  • 60% for property placed in service in 2024
  • 40% for property placed in service in 2025
  • 20% for property placed in service in 2026

Section 179 allows taxpayers to immediately expense up to $1,050,000 in asset additions, including qualifying improvement property. The deduction phases out dollar for dollar once a taxpayers total qualifying purchases exceeds $2,620,000.

Asset Retirement

Asset retirement refers to disposing of the old asset on the books and taking a write-off for the remaining basis.

For example, ABC Company installed all new lighting, including electrical work in 2008 and spent $390,000. The cost for commercial building improvements back in 2008 were depreciated over 39 years ($10,000 per year in this case). So, in 2018 ABC’s basis in the lighting is:

  • $390,000 cost
  • -100,000 accumulated depreciation taken through 2018
  • $290,000

If ABC gets all new lighting again in 2018, it gets to deduct the $290,000 remaining basis on the previous lighting system it installed.