Can lighting retrofits in unconditioned facilities qualify for a full 179D Tax Deduction ( $1.80/SF Deduction)?


With the increasingly modern improvements of Lighting Retrofits to Warehouse/Distribution and Manufacturing facilities, many are aware that a year one deduction of up to $0.60/SF may be available through the EPAct 179D Incentive. This method of qualification is typically done under the IRS’s “Interim Rule.” Many are not aware that in retrofits with aggressive power reductions, the building could qualify for $1.80/SF using the “Permanent Rule.”

Could some building owners be leaving $1.20/SF deduction on the table? YES! The real question is how to meet the requirements when dealing with an unconditioned, or heating only, facility. The energy modeling guidelines for the 179D Tax deduction clearly states that in order to qualify for the full deduction of $1.80/SF, the energy model must result in a 50% or more reduction in power cost savings. To correctly simulate the building, the taxpayers HVAC, lighting, and envelope systems shall be compared to the ASHRAE 90.1 baseline HVAC, lighting and envelope systems.

Great! So if the taxpayers building does not have HVAC, then the model can be simulated excluding the HVAC systems. This makes it easier to meet the 50% savings because the building’s only loads are lighting (with the exception of minimal receptacle loads). Unfortunately, this is WRONG! NREL’s Energy modeling guidelines for the 179D Deduction states that the taxpayers HVAC system “shall match Appendix G modeling rules” from ASHRAE 90.1-2004.

The ASHRAE 90.1 Appendix G HVAC systems modeling requirements for the proposed (or taxpayers) building states that where no cooling or heating system exists, the HVAC shall be identical to the system modeled in the baseline building design. Appendix G describes the baseline system type according to building type, size, and number of floors.

In summary, in order to achieve the 50% savings required for the $1.80/SF Deduction in unconditioned (or heating only) facilities, the taxpayers building shall be modeled with the baseline HVAC system and compared in full to the baseline building. If the energy savings from the lighting retrofit reduce the building’s energy and power cost savings by 50% or more with the theoretical baseline HVAC system, then it will qualify for $1.80/SF.

With our experience, we have seen numerous LED and well designed T5HO systems qualify!

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