Death and Taxes

Below is my column for the Jan/Feb issue of Illuminate, for your consideration. Note that Jan/Feb is my last issue as editor at large. From here on out, I will not be leading the magazine as its editor but instead contributing it to as a staff writer. This was on my request …

Death and taxes may be the only things that are certain in life, but in the case of taxes, why pay more than you must?

While it appears that there has not been a lot of interest among architects and designers in the Commercial Buildings Tax Deduction (CBTD) created by the Energy Policy Act of 2005, simply designing lighting systems that comply with many of today’s energy codes enables building owners to already come close to qualifying for the incentive. This is potential money on the table for your clients and an untapped value-add for your business. In some cases, your company may be able to claim a significant tax deduction for itself.

Keeping in mind that we at Illuminate are not in the business of providing tax consulting and advice—for more information, consult a properly trained, regulated and insured professional—here is an educational description of the CBTD and how lighting can be used to achieve it:

The CBTD provides an incentive for building owners to invest in energy-efficient interior lighting, HVAC/hot water and building envelope. Recently extended to December 31, 2013, the incentive provides an accelerated tax deduction of up to $1.80/sq.ft. to cover the cost of all three advanced systems or up to $0.60/sq.ft. for one of the three systems. The National Electrical Manufacturers Association (NEMA) and the American Institute of Architects (AIA) recently teamed up to call on Congress to expand the benefit from $1.80 to $3.00/sq.ft.

There are several paths to compliance. The complete and partial deduction paths involve one or all three qualifying building systems. Both require intensive energy modeling to compare the energy performance of the proposed building compared to a baseline reference building.

The Interim Lighting Rule, which may not be so “interim” anymore as it appears to also have been extended to December 31, 2013, offers a much more straightforward path.

The Interim Lighting Rule enables owners of commercial buildings to deduct the full cost of new interior lighting, capped at $0.30-$0.60/sq.ft. on a sliding scale, if the new lighting achieves a lighting power density (W/sq.ft.) that is 25-40% lower than the maximum values published in ASHRAE 90.1-2001’s Table 9.3.1.1 or Table 9.3.1.2. (The exception is warehouses: The lighting system must reduce power density by at least 50% to get a $0.60/sq.ft. deduction.)

Besides achieving a target reduction in lighting power density, three other conditions must be met. First, if the project triggers the controls provisions of ASHRAE 90.1-2001, these provisions must be met. Second, bilevel switching must be installed in all occupancies except hotel and motel guest rooms, store rooms, restrooms, public lobbies and garages. And third, the application must meet the minimum requirements for calculated light levels as published in the ninth edition of the IES Lighting Handbook.

In a new building, the local energy code must be complied with. Most codes are based on ASHRAE 90.1 already. In fact, according to EnergyCodes.gov, 29 states already have a commercial energy code in place that is as least as stringent as ASHRAE 90.1-2004/2007 or IECC 2006/2009.

The 2004 and 2007 versions of the standard contain lighting power density caps that are generally 13-50% lower than the 2001 version. For example, maximum allowable power density for office buildings is 23% lower. Retail 21% lower, hospitals 25% lower, manufacturing 41% lower, schools and universities 20% lower, and warehouses 33% lower. This means that simply by designing the lighting system to the requirements of an energy code based on ASHRAE 90.1-2004 or 2007, the design may already be near the zone of qualification.

Regarding bilevel switching, if your code is based on the International Energy Conservation Code (IECC), some type of light level reduction is already required by code in some enclosed indoor spaces. While IECC exempts spaces with occupancy sensors, the CBTD does not, which may entail the use of occupancy sensors with bilevel switching capability in some spaces. Additionally, note that while IECC defines light level reduction, the CBTD does not. Regardless, bilevel switching is a simple, durable, cost-effective energy-saving strategy for many spaces.

And regarding meeting minimum light levels based on IES recommendations, that is just basic good lighting practice.

The bottom line is that by achieving compliance with ASHRAE 90.1-2004/2007 or IECC 2006/2009, adding bilevel switching where required, and adhering to the basics of good lighting design, commercial building projects can come close to achieving qualification for the CBTD. Pushing the design to achieve a little more efficiency may produce a significant financial benefit.

Note that if the building is government owned (does not pay taxes), the designer (“person that creates the technical specifications for installation of energy-efficient building property”) may be allocated the CBTD by the owner, according to IRS Notice 2008-40. This could be an architect or lighting designer. If more than one designer, the owner may allocate the deduction to the designer who was primarily responsible for the design or among the designers.

The primary obstacle is simply the hassle factor. This is something that must be learned, the client must understand and value the benefit, and the project itself must be inspected and certified by a qualified individual who is a licensed contractor or engineer (who is not an employee of the building owner). But the investment in time may be justified if CBTD expertise translates to a competitive edge—certainly if the investment can be amortized over multiple projects.

NEMA recently improved its website built to educate the public about the CBTD. You can check it out at www.lightingtaxdeduction.org.

Craig DiLouie

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