Big Tax Savings with Section 179D & High-Efficiency Lighting
Claiming Big Tax Savings with High-Efficiency Lighting
Did you know that using high efficiency LED lights can not only save the environment, but also save you money? That’s because Section 179D of the U.S. tax code gives building owners and contractors tax deductions of up to $5 per square foot in commercial buildings that achieve at least a 25% reduction in energy usage compared to a baseline.
What is 179D?
Section 179D is a federal tax deduction for energy-efficient improvements in commercial buildings. The 179D tax deduction is designed to help businesses make building upgrades to lighting and other energy-intensive processes, reducing energy consumption. By taking advantage of 179D, building owners and contractors can decrease environmental impact, and promote sustainable construction practices – all while saving on their taxes.
Who qualifies for 179D tax deduction?
To qualify for 179D tax credits, lighting projects must meet ASHRAE (American Society of Heating, Refrigerating, and Air-Conditioning Engineers) energy efficiency standards. ASHRAE is an international professional association that develops widely used standards for building energy efficiency. In particular, the ASHRAE 90.1 standard sets a maximum limit on Lighting Power Density (LPD)—the amount of power used to illuminate a square foot. ASHRAE 90.1 also addresses smart light controls like dimming systems that adjust the brightness of artificial light throughout the day, so contractors and building managers need to ensure their LED lights are dimmable to maximize their tax deduction.
How much can I save under section 179D?
Under Sec 179D, the tax deduction varies depending on the year the property is placed in service. For 2025, the IRS website states the deduction maximum is $5.00 per square foot for projects meeting prevailing wage and apprenticeship requirements. Retrofit lighting projects in existing buildings placed in service before January 1, 2023, have a somewhat lower maximum deduction cap. The savings amount can vary according to the exact percentage of energy savings, the year the property went into service, and whether local prevailing wages are paid and apprenticeship requirements are met, so it is always a good idea to check with the IRS on section 179D guidance, as well as talking with your tax planner.
How do I make my lighting more efficient to claim the deduction?
The easiest way to achieve the minimum 25% energy efficiency improvement is through replacing older incandescent lighting with energy-efficient LEDs, along with using LED lighting fixtures that can dim and work with sensors. LED technology uses around 80 to 90% less energy compared to incandescent lighting and can last for decades longer. Using dimmable and smart control compatible LED lighting fixtures can further help properties meet the energy efficiency thresholds for the tax deduction, while at the same time helping contractors increase profits and property owners to lower their operating costs.
Which lighting certifications help me qualify for 179D tax deductions?
When selecting the best lights to meet ASHRAE standards for Section 179D, contractors and building owners should look for Energy Star, DLC, or JA8 certified products. These certifications mark lighting products that meet rigorous energy efficiency, safety and performance standards. In a lot of cases these standards overlap with those of ASHRAE. For example, the ASHRAE LPD standard for maximum wattage per square foot aligns with both Energy Star and DLC. Similarly, JA8 certification require lighting to be dimmable, which aligns with the ASHRAE standards for “daylight harvesting.” In short, if you are already using an Energy Star, JA8 or DLC rated program, you may already be meeting ASHRAE standards.
Conclusion
Whether you are working on a new construction or a retrofit lighting project, there is an opportunity for significant cost savings from tax deductions under Section 179D. The quickest and surest way of qualifying for those deductions is simply to use lighting fixtures that are already Energy Star, JA8 and DLC certified. Using certified lighting can help commercial building owners and contractors claim the maximum tax deduction, in addition to reducing their carbon footprint and building a more eco sustainable future.