Unlocking the Benefits of EPAct 179D Tax Deduction for Lighting Upgrades in 2023 and Beyond!

The IRS isn’t knocking on businesses’ doors and handing them cash, but there is a tax deduction benefit for energy-efficient lighting upgrades that building owners can unlock if they understand how.

So, if you manage, own or lease a commercial or industrial building in the U.S., and you pay taxes, you may be entitled to receive a tax credit per square foot for installing or upgrading your lighting from less-efficient light sources to LED.

As business owners and energy professionals look for ways to pay for upgrades and reduce their tax liability while promoting sustainable practices, the Energy Policy Act (EPAct 179D) stands out as an attractive option. This federal tax incentive encourages energy efficiency in commercial buildings and offers significant deductions for qualifying projects. In this blog, we will explore the EPAct 179D tax deduction and highlight its benefits for businesses in 2023 and beyond.

What is the EPAct 179D Tax Deduction?

The EPAct 179D tax deduction was introduced back in 2005 to incentivize the implementation of energy-efficient technologies in commercial buildings. This tax deduction has continued since then, and in 2023, the incentive was even increased. Under this program, building owners and developers can claim deductions for energy-efficient improvements, provided they qualify and apply. The deduction varies based on the different types of building usage, which includes industrial buildings, warehouses, office complexes, retail stores and four-story+ apartment buildings. And Section 179D isn’t just for the building owners. It’s also available to architects, engineers, and contractors working on public structures like schools, churches, hospitals, and government buildings.

How Does the EPAct 179D Tax Deduction Work?

To qualify for the EPAct 179D tax deduction, buildings must meet specific energy standards set by the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE). These standards include improvements in lighting as well HVAC systems, and building envelope efficiency (insulation). The deduction amount varies based on the level of energy efficiency achieved, with maximum deductions of up to $5.00 per square foot for those in service in 2023. Prior to 2023 the maximum deduction for this tax code provision was $1.80/SF— a very significant increase in 2023.

You should consult your tax advisor, or a 197D tax consultant, for specifics on how to apply this tax incentive to your business.

REVIEW: The Benefits of the EPAct 179D Tax Deduction

1. Financial Savings: The EPAct 179D tax deduction offers significant financial benefits to businesses. By implementing energy-efficient measures, businesses can reduce their energy consumption, resulting in lower utility bills. Additionally, the tax deduction can lead to substantial savings and potentially increase cash flow.

2. Environmental Sustainability: As the world becomes increasingly conscious of the need for sustainable practices, the EPAct 179D tax deduction provides an opportunity for businesses to align their operations with environmental goals. By investing in energy-efficient technologies, like LED lighting, businesses can significantly reduce their carbon footprint and contribute to a greener future.

3. Competitive Advantage: Building owners and developers who take advantage of the EPAct 179D tax deduction can gain a competitive edge in the market. Energy-efficient buildings not only appeal to environmentally conscious consumers but also attract tenants who seek to reduce their operational costs. By showcasing their commitment to sustainability, businesses can attract a wider customer base and enhance their brand image.

4. Increased Property Value: Energy-efficient buildings have proven to have higher property values compared to their less-efficient counterparts. By making the necessary upgrades to qualify for the EPAct 179D tax deduction, businesses can increase the value of their properties, potentially leading to long-term financial benefits.

5. Continued Availability: The EPAct 179D tax deduction has been extended multiple times since its inception and remains an attractive option for businesses in 2023 and beyond. By taking advantage of this incentive, businesses can make a positive impact on their bottom line while contributing to a more sustainable future.

In conclusion, the EPAct 179D tax deduction is a valuable tool for businesses and developers who are looking to reduce their tax liabilities while promoting energy efficiency. In 2023, this federal incentive continues to offer significant financial and environmental benefits, giving businesses a competitive advantage and contributing to a greener future. By investing in energy-efficient technologies, and meeting the necessary requirements, businesses can unlock the potential of the EPAct 179D tax deduction and reap the rewards for years to come.