The Energy Policy Act of 2005
Encourages Energy-Efficient Lighting with Tax Deduction

On August 8, President Bush signed the Energy Policy Act of 2005 (EPAct2005), which had passed both the Senate and House of Representatives the previous week after years of wrangling between Democrats and Republicans. Estimated to cost about $14.5 billion over 10 years, EPAct2005 is the biggest overhaul of national energy policy since 1992.

The Energy Policy Act of 2005 (EPAct2005) provides a tax deduction of up to $.60/sq. ft. for investment in energy-efficient lighting of a commercial building property as part of new construction or renovation (within the scope of the ASHRAE/IES 90.1 standard). The amount of the deduction is the lesser value of $.60/sq. ft. or the costs incurred or paid for the energy-efficient Lighting.

“Energy-efficient property” is defined by EPAct2005 to be commercial building property that is certified to reduce total annual energy and power costs to at least 50% less than a building satisfying the 90.1-2001 Standard. Qualifying systems can be as much as $1.80/sq. ft. if they include interior lighting systems ($.60/sq ft.), heating, cooling, ventilation and hot water systems ($.60/sq ft.), and building envelope (additional $.60/sq ft.),. In addition, the property must be otherwise depreciable property, located in the United States, and paid to be constructed by the taxpayer seeking the deduction.

Energy-Efficient Commercial Property
EPAct2005 provides a tax deduction of up to $1.80/sq.ft. for investment in energy-efficient commercial building property as part of new construction or renovation (within the scope of the ASHRAE/IES 90.1 Standard). The amount of the deduction is the lesser of: 1) $1.80/sq.ft. or 2) the costs incurred or paid for the energy-efficient property.

In addition, the property must 1) be otherwise depreciable property, 2) located in the United States, 3) paid to be constructed by the taxpayer seeking the deduction.

The Deduction
Under current law, the cost of energy-saving investments must be capitalized and depreciated over time. EPAct2005, Section 1331, states: “There shall be allowed as a deduction an amount equal to the cost of energy efficient commercial building property placed in service during the taxable year.”

Window of Opportunity
EPAct2005’s Energy Efficient Commercial Buildings Deduction applies with respect to property placed in service between January 1, 2006 and December 31, 2013, inclusive. The original window was four years, but this was compressed to two years after intense Congressional negotiations to reduce the overall cost of the tax package. Congress may extend the window by an act of legislation, which NEMA is planning to advocate by demonstrating the success of the deduction in stimulating energy savings in cooperation with its members and others.

For Additional Information
Contact Progressive Lighting & Energy Solutions - 1562 Parkway Loop, Suite B, Tustin, CA 92780 - Info@ProgLighting.com - Tel: 1-714-542-5490