2005 Energy Policy Act - Frequently Asked Questions on Interim Lighting Guidelines
Consult an attorney or tax professional regarding your specific situation.
1. Is the commercial buildings tax incentive a tax deduction or a tax credit? Are new buildings and existing buildings eligible?
It is an accelerated tax deduction for capital improvements to new or existing buildings.
2. How is the tax deduction permitted by Epact determined for the interim lighting rule?
Lighting power density in watts per square foot.
3. Is Epact tax deduction voluntary or a mandatory?
Epact is a voluntary program, the state of Wisconsin adopted the International Energy conservation code (IECC) and that is mandatory in Wisconsin.
4. How do I calculate the watts-per-square-foot (lighting power density) in a space with multiple lighting systems?
If a space has multiple lighting systems, the watts-per-square-foot (lighting power density) is calculated as the total of all the lighting systems present in that space.
5. Can the tax deduction be taken for a project started in 2008?
Yes, as long as it is completed in 2009 or 2010. The deduction is in effect until December 31, 2013.
6. What is the maximum deduction available for a lighting system upgrade?
Sixty cents per square foot.
7. Is automatic lighting shut-off required to qualify for the tax deduction?
Per the ASHRAE/IESNA 90.1 standard, new buildings greater than 5000 sq. ft. must include automatic lighting shut-off. There are exceptions to this rule for Wisconsin with the adoption of the IECC.
8. Can I apply for the accelerated tax deduction, even if the building upgrades do not result in energy savings?
Yes. While this is a very unlikely situation, it is theoretically possible. The deduction depends on watts-per-square-foot (lighting power density) of the final system, regardless of the original watts-per-square-foot calculation.
9. Should my accounting department treat the cost of the upgrade as a capital expenditure to qualify for the tax deduction? What is the difference between a routine expense and a capital expense (investment?)
Yes. The tax deduction is, essentially, an accelerated depreciation of a capital asset investment.
10. I replaced incandescent lamps with screw-in CFL lamps, and standard F32T8 with F28T8. Can I qualify for a tax deduction by the Energy Policy Act because of the energy savings involved?
No. The simple reason is that lamp replacements are generally accounted for as maintenance expense and not as investment.
11. Do lighting upgrades for outdoor spaces such as parking lots qualify for the tax deduction?
No. The tax deduction is only for the interior of buildings, not for outdoor lighting. An indoor parking garage would qualify.
12. How can a warehouse upgrade qualify for a tax deduction?
For a warehouse to qualify, it has to be at or below 50% of the watts per square foot specified in the ASHRAE/IESNA 90.1 document, and then it qualifies for a $0.60 per square foot deduction.
13. Is it possible to apply for a tax deduction for only a portion of a building?
14. Can I take the allowed tax deduction no matter how much I spent on the lighting upgrade?
No. You can only take the permitted tax deduction up to the value of the asset. Focus on Energy incentives are deducted from the total out of pocket costs.
15. If all lighting retrofit investments end up being deducted from income over time anyway, what is the benefit of Epact?
The benefit of Epact is that it allows a larger portion of the capital investment to be deducted in the first year, improving cash flow of the projects.
16. Is the person who pays the energy bill the only one who can apply for the tax deduction?
Not necessarily. The tax deduction is available to the entity that is carrying the fixtures as an asset on their books. This may not be the entity that is paying the electric bill.
17. Does Industry have a general definition of bi-level switching?
Bi-level switching is defined as manual or automatic control that provides two levels of lighting power in a space (not including off).
18. Can government organizations still take a tax deduction if the lighting qualifies?
Not directly. In the case of a facility owned by a federal, state or local government, the allocation of the deduction shall go to the person primarily responsible for designing the property in lieu of the owner of such property. This may be an option for reduction of project costs.
19. Is labor for installing the new fixtures also included in the book value of investment for retrofit, or just the cost of materials?
Labor to install the new fixtures is considered part of the asset value. The labor to remove the old fixture is considered a simple expense and is not capitalized.
20. Who is qualified to certify that an energy efficient lighting upgrade meets the Tax requirements for an accelerated tax deduction?
Lighting Design Solutions fits the criteria and licensing requirements of qualified individual.
21. How long is the deduction available?
It was updated with President Bush and signed into law for projects completed prior to December 31, 2013.