EPAct Tax Aspects of McQuay Chiller LED Lighting Combinations

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Innovative Chiller Technology and LED Lighting

Buildings, particularly office buildings, that are interested in operating at the highest energy efficiency levels are upgrading to very energy efficient McQuay frictionless chillers and low wattage LED lighting. Large EPAct tax incentives typically at the $1.80 per square foot level are available for these product combinations.

Code Sec. 179D Tax Opportunities

Pursuant to Energy Policy Act (EPAct) Code Sec. 179D, as enacted by EPAct, commercial property owners making qualifying energy-reducing investments in their new or existing locations can obtain immediate tax deductions of up to $1.80 per square foot.

If the building project does not qualify for the maximum $1.80-per-square-foot immediate tax deduction, there are tax deductions of up to $0.60 per square foot for each of the three major building subsystems: lighting, HVAC (heating, ventilating, and air conditioning) and the building envelope. The building envelope is every item on the building’s exterior perimeter that touches the outside world including roof, walls, insulation, doors, windows and foundation.

LED Lighting

LED lighting is becoming widely used as a much more energy efficient alternative for the lighting needs for buildings. In our previous article entitled “LED Lighting Can Play a Key Role in Securing EPAct Tax Benefits,” we looked at LED lighting as a prime solution for office buildings, hotels and restaurants, and retail stores. LEDs are extremely energy efficient and typically qualify for a full deduction for the lighting portion of EPAct.

McQuay Chillers

McQuay, a large U.S. HVAC maker, has engineered an innovative very energy efficient chiller. The firm, which recently was purchased by Daikin Industries, Ltd., has created frictionless chillers, which are much more efficient than many conventional chillers. These chillers use magnetic bearings which are able to spin quicker than their lubricated counterparts. This makes the chiller run efficiently and utilize much less electricity.

In October, 2011, the U.S. Department of Energy announced the submission of Daikin McQuay’s “Rebel” unit as part of a voluntary challenge for new HVAC units. Referring to this, the Secretary of Energy, Dr. Steven Chu, said “I’m excited to see manufacturers raising the performance bar to meet the genuine demand for energy-saving commercial air conditioners.” The U.S. Department of Energy desires a 50 to 60 percent reduction in energy usage for commercial HVAC units, such as the ones McQuay makes.

Integrated Part Load Value (IPLV) is a measurement of Commercial HVAC efficiency across various building loads. This important value allows comparison between HVAC make & models and current building code standards. Magnetic bearing chiller's IPLV exceeds 40% more efficient than chillers designed to ASHRAE 90.1 2001-2007 codes.

Benchmarking

The mandatory and voluntary use of building energy benchmarking has become practice for measuring how well a product meets efficiency standards. Benchmarking takes energy utilization for a building and compares this number with other similar property energy usage. A building is energy efficient and qualifies for the Energy Star rating if it is at the 75% mark or in the third quartile or better. The use of energy benchmarking allows building owners and tenants to measure the amount of energy usage compared to similar buildings. Major jurisdictions with mandatory energy benchmarking include the state California and the cities of Austin, Texas, Seattle, Washington, New York City, and Washington D.C. Office buildings below 75th percentile ratings may want to consider LED lighting and or McQuay chillers to improve their rating.

HVAC Tax Deduction Targets

For projects placed in service after March 12, 2012, businesses no longer need to hit a 16 2/3% target per technology in order to qualify for EPAct incentives. An HVAC EPAct tax incentive is available for a 15% energy cost reduction, and a building envelope tax incentive is available for a 10% energy cost reduction.

Accordingly, a property owner can now receive a 2-measure $1.20 per square foot deduction for a 15% HVAC and 10% Envelope energy cost reduction (a total combined energy cost reduction of 25%). A company would have previously had to have met a total combined energy cost reduction of 33 1/3% before the recently issued IRS Revenue Procedure.

Conclusion

The energy efficiency of either a McQuay chiller or LED Lighting allows property owners to nearly always receive a tax deduction under EPAct. Although the initial capital investment may be large, the McQuay chiller and LED Lighting bring along energy cost savings in addition to the tax deduction from EPAct. This allows the property owner or tenant to greatly reduce ongoing operating costs.

References
Charles R. Goulding, Raymond Kumar, and Jennifer Pariante. “LED Lighting Can Play a Key Role in Securing EPAct Tax Benefits.” IMARK Now. (February 2012): Print.
See press release: http://energy.gov/articles/department-energy-announces-first-entry-market-driven-high-efficiency-commercial-air
Charles R. Goulding and Spencer Marr. “Washington D.C. Energy Benchmarking Impacts Local Hotels.” Google Knol. (June 2011): Print.
See IRS Bulletin No. 2012-17 from April 23, 2012: http://www.irs.gov/pub/irs-irbs/irb12-17.pdf

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