To further elaborate upon the building’s interior lighting systems discussed above, I.R.C. 179D offers an accelerated tax deduction equal to the complete cost of installing energy-efficient interior lighting, capped at $0.30 to $0.60 per square foot proportional to Lighting Power Density (hereinafter “LPD”, calculated as Watts per Square Foot) reduction levels of 25% to 40%.
In order to achieve the maximum $1.80 per square foot under the I.R.C. 179D energy tax deduction for building envelope efficiency, energy and power costs must be reduced by at least 50 percent when compared to a reference building. If a building comes in under 50 percent, it may still qualify for a deduction of $.60 or $1.20 per square foot by looking at individual systems.
For partial deductions, the requirement for the building envelope is a 10 percent improvement. For lighting and HVAC/hot water systems, the improvement must reach a 20 percent threshold. Additionally, there are special rules for lighting-only projects applicable to both new construction and retrofits, which use a graduated scale. The standards for the reference building are somewhat dated and the thresholds can often be met through current design techniques.