Next Gen qualified LED lighting – A Brilliant Way to Save

Lighting Tax Deduction – Commercial Buildings

The Energy Policy Act of 2005 provides an immediate tax deduction for retrofitting incumbent lighting to energy efficient LED lighting. The expiration of this tax deduction is January 1, 2014. The Commercial Building Tax Deduction (CBTD) is a tax deduction and not a tax credit. A tax deduction reduces the taxable income for the year while a tax credit is a dollar for dollar reduction in taxes owed. The available deduction is $.60 per square foot up to 100% of the cost of the system.

In order qualify a project, a NextGen engineer must conduct a Performance Rating Method (PRM) that will indicate at least 50‐percent reduction in energy and provide a certification for the property. This process includes utilizing qualified software approved by the IRS. The final report will not need to be attached to your return but you must maintain records to prove entitlement to the tax deduction.

The deduction would be taken on the other deduction line on the partnership or corporation income tax return. For a partnership that would be line 20 on Form 1065. For a corporation it would be line 26 on Form 1120. A sole proprietor would take the deduction on line 27 a, other expenses on Form 1040 Schedule C.

This upgrade would typically be depreciated over a 27 or 39 year life. However, under the Energy Policy Act, 100% of the system can be depreciated using accelerated methods in the current year.

The IRS issued Notice 2006‐52 with an amplification of this with Notice 2008‐40. Please use the following links to these notices:
IRS Notice 2006‐52
IRS Notice 2008‐40