EPAct 2005 Tax Deduction
The Energy Policy Act of 2005 (epact) created the "Energy Efficient
Commercial Buildings Tax Deduction", which allows building owners to deduct the
entire cost of a lighting or building upgrade in the year the equipment is
placed in service, subject to a cap.
The Emergency Economic Stabilization Act of 2008, signed into law by
President George W. Bush on Oct. 3 includes a five-year extension of the
"Energy Efficient Commercial Buildings Tax Deduction".
The tax deduction is now scheduled to expire on December 31st, 2013.
The EPAct tax incentive is a 179d EPAct tax deduction not an EPAct tax credit.
The EPAct Tax Deduction offers an accelerated tax deduction equal
to the complete cost of installing "energy-efficient commercial property" in
a commercial building, capped at $1.80/sq. ft.
To achieve the maximum tax deduction of $1.80/sq.ft the total annual energy and
power costs must be reduced to at least 50% less than a building satisfying
ASHRAE Standard 90.1-2001 as determined by DOE EPAct approved software. A
list of EPAct approved software is provided on the DOE
The focus of this site is the EPAct lighting tax deduction which is capped at $0.60/sq. ft.
What This Means When The Building Is Privately Owned:
$0.30 to $0.60/sq. ft. can potentially be deducted by the building owner.
The cap is the total cost of the lighting project.
Therefore the entire cost of the lighting project can be deducted in the same year.
What This Means When The Building Is Publicly Owned:
The tax deduction can be applied to the "EPAct designer of record" and can be
divided among several companies.
Method of Taxpayer or Designer of Record to Claim the EPAct Tax Deduction and receive EPAct Certification:
The IRS released interim guidance (IRS Notice 2006-52) in June 2006 to establish a
process to allow building owners and designers of record to obtain EPAct Certification and claim the EPAct tax deduction. IRS Notice 2008-40 was issued
in March of 2008 to further clarify the rules of EPAct compliance. NREL published a report (TP-550-40228)
in February 2007 which provides compliance guidelines for the energy modeling and inspection of energy
savings required by the statute.
According to the Interim Rules for EPAct Lighting Projects:
- The lighting system energy savings target is a LPD (Lighting Power Density),
or watts per square foot, that is 25% to 40% lower than the minimum
requirements of ASHRAE Standard 90.1–2001
- The potential amount of the EPAct tax deduction is $0.30 to $0.60 per
square foot depending upon the percentage that the LPD is reduced beyond
ASHRAE Standard 90.1 – 2001
- For warehouses, the lighting power density (W/sq. ft.) must be 50% lower
than the minimum requirements of ASHRAE Standard 90.1–2001 to be eligible
for the $0.60 per square foot EPAct tax deduction.
- Lighting power density (W/sq. ft.) reductions of <25% are ineligible for any EPAct
In addition to demonstrating a reduction in lighting power density lower
than the requirements for ASHRAE Standard 90.1–2001:
- Control provisions (i.e. Automatic Lighting Shutoff) relating to lighting
systems as set forth in the Standard must be met.
- EPAct Bi-level switching must be installed.
- The lighting system must also meet the minimum requirements for calculated
light levels as set forth in the 9th Edition of the IESNA Lighting Handbook.
Visit the Illuminating Engineering Society of North America for information
on obtaining the lighting handbook.
What This Means To The Auditing Team:
The lighting audit must now contain 3 additional data points per space to be EPAct compliant.
- Foot-Candle Measurements.
This is to verify the lighting system meets the minimum requirements set
forth in the 9th Edition of the IESNA Lighting Handbook.
- Room Dimensions (Sq. Ft.)
This is to document existing as well as proposed watts per square foot.
- Existing Controls.
This is to document bi-level switching and "Automatic Lighting Shutoff" as
required by ASHRAE Standard 90.1–2001
Lighting Audit Services Approach:
Completing an epact lighting audit can be a daunting task. However, the tax
deduction makes it very attractive to our clients.
Lighting Audit Services has conducted many epact compliant lighting
Our auditors are armed with a hand held computer, digital camera,
foot-candle meter, ballast frequency meter and laser distance meter.
We audit every space in the building taking applicable measurements in each.
Please feel free to Contact Lighting Audit Services regarding the requirements of an epact lighting audit.