This article warrants consideration and a read: “The Math Changes on Bulbs” by Kate Linebaugh Wall Street Journal.
Kate Linebaugh covers not only the cost savings of replacing standard bulbs with LED bulbs for energy efficiency, but also the cost-savings associated with “lowered maintenance costs.” LED’s savings from energy use to labor savings is one way to look at the Simple Payback Period/ROI. The SPP/ROI on new, energy-efficient systems may be longer, but the equipment will perform more reliably while providing better working conditions and lowering energy costs along the way. Most business owners will assume that funding for energy efficient upgrades has to come from dipping into their equity in the facility, or from an outside funding source such as a bank loan. Fortunately, there are alternative strategies that can be put into place to pay for energy efficiency projects by significantly lowering your tax burden.
One such tax benefit that can be applied to energy efficient construction or improvements is found in section 179D of the Energy Policy Act of 2005. §179D includes full and partial tax deductions for investments in energy efficient commercial buildings that are designed to increase the efficiency of energy-consuming functions. The deduction available is up to $.60 per square foot for lighting, HVAC and building envelope, creating potential for $1.80 per square foot if all three components qualify. These deductions are applicable to buildings that were either built or retrofitted after December 31, 2005. In order to qualify for the deduction, the taxpayer must receive a third party energy efficiency certification.
In addition, the issuance of Revenue Procedure 2011-14 will allow some taxpayers to claim the §179D deduction all the way back to January 1, 2006 without filing one single amended income tax return. This means that a taxpayer could potentially claim deductions from 2006-2010 (or 2011) all on one return and significantly reduce their tax burden, if not eliminate it altogether, which goes a long way toward funding energy efficiency.
Instead of looking to outside sources or reducing your valuable equity to fund energy efficiency, look to your own building for the answers. Putting the right strategy into place can result in surprisingly significant savings and painless way to pay for your project.