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EPAct 2005 - Lighting-Related Provisions

Signed into law August 8th, 2005; In effect through December 31, 2013

The Energy Policy Act of 2005 sets out requirements targeted to raise energy efficiency and reduce energy consumption. To encourage commercial building owners to invest in energy saving technology, Section 1331 of EPAct '05 allows for a one-time deduction equal to the cost of the project in the year the project was commissioned. 

Using the partial deduction method, the maximum deduction is $0.60 per square foot. The actual amount per square foot is tied to the percentage improvement over ASHRAE standard 90.1-2001 lighting power density (LPD).

The total potential tax deduction is compared to the cost of the project. If the cost of the project is less than the potential tax deduction, the cost of the project is deducted from the current year's taxes. If the cost of the project is greater than the total potential deduction, the potential deduction becomes the actual deduction for that year and the remainder of the cost is depreciated as normal. The actual tax benefit is dependant on the owner's tax rate.

Sample EPAct Calculation for a Manufacturing Facility:

Area (sq. ft.) x 90.1 Light Power Density (W/sq. ft.) = 90.1 Allowance (Watts)

100,000 X 2.2 = 220,000

New Total (Watts) / Area (sq. ft.) = New Light Power Density (W/sq. ft.)

125,000 / 100,000 = 1.25

(90.1 LPD - New LPD) / 90.1 LPD = Percent Improvement

2.2 - 1.25 / 2.2 = 43%

Area (sq. ft.) x Deduction ($/sq. ft.) = Potential Deduction ($)

100,000 X 0.6 = 60,000

Deduction ($) x Tax Rate (%) = Value ($)

60,000 X 35 = 21,000

The net cost of this project would be reduced by $21,000!

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