Tax Credits for LED Lighting

A warm colored LED lightbulb.
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In the rush for U.S. energy independence, the Commercial Building Tax Deduction came as a boon to building owners incorporating energy-efficient lighting systems such as light-emitting diode technology. The deduction expired in December 2013, but tax reforms may yet revive the deduction, with the Indoor Environment & Energy Efficiency Association advocating a $3 per square foot deduction as a greater incentive to stay green.

History of the LED Deduction

Hailing back to 2005, when the Energy-Efficient Commercial Building Deduction was born, tax deductions to offset the cost of installing energy-efficient projects such as LED lighting systems have been helping small-business and commercial building owners curb expenses. However, Section 179D tax deductions, as they are called, expired on December 31, 2013, and Congress did not extend the tax incentives beyond the deadline. For green-minded building owners who were counting on the deduction, all hope is not lost. As of mid-2014, legislation was still pending in Congress, that would extend the 179 deduction another two years through December 31, 2015.

Eligibility

To be able to claim the LED deduction, the business filing for the credit had to meet a number of criteria based on lighting power density reduction, the time frame for completion of the project and owner status. To snag this deduction, you had to be the building owner. If the building was publicly owned, the deduction could be allocated to a designated designer such as an architect or contractor.

Deduction Allowances

The LED deduction specified a partial tax deduction and a maximum tax deduction, based on the reduction of lighting power density. That means that for energy reduction rates of 25 to 40 percent -- or 50 percent for a warehouse -- you would have been able to claim a deduction of $0.30 to $0.60 per square foot. The maximum deduction would have been $1.80 per square foot for 50 percent total energy reduction, capped at the cost of the energy-efficient commercial building property placed in service during the taxable year.

Claiming the Deduction

You were able to claim the 179D tax deduction for commercial LED usage by filling out the "Other Deductions" portion of your tax return. The deduction ending in 2013 also allowed tax return amendments dating back three consecutive years.

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