Multiple Lighting Technologies Drive Large EPAct Tax Deductions for Parking Garages
The wide range of improved and highly energy efficient lighting technologies that substantially reduce parking garage electricity consumption has made parking garages into one of the fastest growing Energy Policy Act of 2005 (EPAct) tax deduction categories.
The Tax Opportunity
Pursuant to Section 179D of EPAct and its underlying ASHRAE (American Society of Heating Refrigeration and Air Conditioning) building energy code, commercial buildings are eligible for energy efficiency tax deductions of up to $1.80 per square foot. If a building’s energy reducing investment doesn't qualify for the full $1.80 per square foot deduction, deductions are available for any of the three major sub-systems, including:
2. HVAC (Heating, Ventilation and Air Conditioning) and
3. The building envelope
Each component can qualify for up to 60 cents per square foot EPAct tax deductions. The building envelope is anything on the perimeter of the building that touches the outside world including roof, walls, windows, doors the foundation and related insulation layers.
IRS Notice 2008-40 Sec. 6 specifically references Parking Garages as an eligible building category for Section 179D tax deductions. Due to the unique aspects of Parking Garages, these deductions are usually limited to $0.60/sq.ft. for lighting. In order to qualify for the tax deduction, the lighting system must exceed the efficiency set by ASHRAE. Table 1 highlights these specific targets. Table 2 shows how the tax deduction varies with different size Parking Garages.
Under current law EPAct parking garage deductions are available for both new and existing building lighting projects completed between January 1st 2006 and December 31st 2013.
The three major parking garage lighting technologies currently used to achieve energy cost reduction and obtain large EPAct tax deductions are:
2. LED and
3. Induction lighting.
Each of the three major parking garage lighting technology alternatives have strengths and weakness that need to be evaluated. Items to consider include investment price point, utility rebates, building environment, lighting performance, operating costs, lamp life, warranties, dimming characteristics and maintenance costs.
To date, fluorescent lighting, utilizing T-8 and T-5 lamps, has been the most common product selection for energy efficient lighting. With fluorescent lighting conversions, density of fixture layout is critical to minimizing energy use and maximizing EPAct tax incentives. Without attention to design we see some projects that miss tax deduction or only achieve partial tax deduction. Fluorescent installations generally have the lowest installed price point of the three major lighting technologies.
LED or Light Emitting Diode lighting is moving quickly into the parking garage market place. There are many competing vendors and product offerings and garage owners need to research and compare product offerings. Due to the low wattage level most LED parking garage projects qualify for the maximum EPAct tax deduction but some projects are right on the edge of eligibility so it is important to have an EPAct knowledgeable reviewer the calculation.
In an interesting market development induction lighting although available in the U.S. for over ten years is enjoying high growth in the parking garage market all be it from a relatively small installed base. Now that parking garage owners have two distinct product alternatives in fluorescent and LED lighting they seem to be more open to compare and contrast a third lighting alternative. Induction tends to have price point in between fluorescent and LED and has its own particular attributes warranting evaluation. Induction lighting is actually fluorescent lighting without electrodes and is sometimes called electrodeless discharge lighting .
It is crucial to understand how different utility rebate processes work with the different lighting technologies. Many utilities offer two types of rebates;:
1. Prescriptive and
Prescriptive rebates are a fixed amount per product such as $30 per fluorescent fixture. Prescriptive rebates are common with high volume mature product categories because utilities are thoroughly familiar with the products energy performance results. Accordingly most utilities offer fluorescent rebates based on a prescribed amount available from a prescribed table or listing.
Custom rebates are tailored or customized to the products expected performance and are normally calculated based on the electricity expected to be saved. Hence, custom rebates for electricity based products are sometimes called kW(kilowatt) rebates. Many utilities are not yet familiar or supportive of LED and induction lighting products so the exclusive rebate opportunity may be a custom rebate. Since LED and induction lighting is low wattage lighting, a probing into a custom rebate may result in a dialogue resulting in a much higher overall rebate than the typical prescriptive process.
Many parking garages still have mainstream prior generation energy inefficient metal halide and T-12 lighting. As of January 1, 2009 probe start metal halides are illegal to manufacturer in their most common wattage categories. T-12 magnetic ballasts will also be illegal to manufacturer as of July 1, 2010. As replacement costs for these banned items increases, parking garage owners will naturally retrofit to one of the 3 efficient technologies.
There are a wide variety of commercial garages where either the garage owner or a tenant/garage management firm can obtain the EPAct tax deduction benefit depending on who paid for the energy efficient lighting. Typical commercial garage owners include, commercial city garages, commercial airport garages, apartment buildings, office buildings, department stores, hotels, and casino's.
Government Owned Garages
With government owned garages the design team is entitled to the EPAct tax deduction. For tax purposes a designer can be an architect, engineer, lighting designer, design and build contractor or an ESCO (Energy Services Company ). It is important to note that by statute the tax beneficiary is the designer and not the government entity. The government owner reaps the larger economic benefit which is the permanent perpetual energy cost reduction. The parking garage lighting designer or design team earns a onetime tax incentive for designing an energy efficient facility.
New Mandatory Energy Benchmarking Rules
An ever increasing number of larger cities that have numerous parking garages are enacting mandatory commercial building energy usage benchmarking rules with public disclosure by prescribed time lines. Those cities include Austin, Los Angeles, New York, Seattle and Washington D.C. One of the major goals of these laws is to provide tenant and consumer transparency. The consensus advice is that parking garage owners may be best advised to upgrade to energy lighting before being obligated to report an inferior building.
The economic payback is so compelling that parking garages throughout the country are moving quickly to capture the combined energy savings, utility rebates and the large EPAct tax savings related to parking garage lighting retrofits Large multi site garage owners that may be resource constrained for retrofitting all garages at once should be planning to have lighting retrofits completed on or before December 31st 2013. The overall economics are too lucrative to justify delay and financing is available that actually further enhances the economic return.
The federal government has not only provided a large tax savings opportunity for energy efficient building lighting retrofits it has made it clear by a special notice that garages qualify for this tax incentive. Garage owners need to carefully consider using this opportunity in their business planning.