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TwentyQuestions ?

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This set of questions and answers has been prepared by GE to present the current understanding (May 2006) of provisions contained in the 2005 Energy Policy Act. Further details are awaited from the federal government. CONTACT A QUALIFIED TAX PROFESSIONAL FOR FULL DETAILS OF ELIGIBILITY REQUIREMENTS. Neither GE nor Rexel accept, in any way, any liability for decisions made based on the contents of this preliminary explanation.

NAVIGATION: Display in “Slide Show” mode. Click anywhere on the screen or use the “Next” control to display the answer and then to proceed to the next question.

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QUESTION 1:The tax deduction permitted by the Energy Policy Act is on a sliding scale based on the kilowatt-hours saved per year in the building.

Answer: FalseThe deduction is calculated based on watts per square foot (lighting power density) and is not based on the actual hours of energy use.

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QUESTION 2:If a space has multiple lighting systems, the Energy Policy Act requires you to count only the system that is on most of the time.

Answer: FalseThe watts per square foot (lighting power density) is calculated as the total of all the lighting systems present in that space.EXCEPTION: In retail spaces, track lighting and display case lighting are not counted in the watts per sq. ft. number. Also, portable lighting is generally not counted, only installed lighting.

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QUESTION 3:The tax deduction can be taken for a project started in 2005 as long as it is completed in 2006 or 2007.

Answer: True

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QUESTION 4:No matter how low in energy you go, the maximum deduction available for a lighting system upgrade is 60 cents per square foot.

Answer: True

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QUESTION 5:The mandatory automatic shut-off requirements for new building construction spelled out in ASHRAE/IESNA 90.1 must be met in order to qualify for the tax deduction.

Answer: TrueNew buildings greater than 5000 sq. ft. must include automatic lighting shutoff.

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QUESTION 6:If an upgrade is made that does not result in energy savings, then no accelerated tax deduction is possible.

Answer: FalseThe deduction depends on watts per square foot (lighting power density) of the final system and there is no condition on where you started from. For example, it is possible to replace old fixtures with identical new fixtures and qualify for a tax deduction, even though no energy savings are realized.

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QUESTION 7:Automatic shut off is required for all lighting systems.

Answer: FalseThe ASHRAE/IESNA document does not require automatic shut-off for existing building retrofits. However, a new requirement of bi-level switching has been added to qualify for the tax incentive.

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QUESTION 8:It is necessary for the cost of the upgrade to be treated by the accounting department as a capital expenditure for the tax deduction to be available.

Answer: TrueThe tax deduction is, essentially, accelerated depreciation. The asset must be shown on the books for the increased depreciation to be taken in the first year.

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QUESTION 9:Replacing incandescent lamps with screw-in CFL lamps, and replacing std. F32T8 with F28T8 are examples of ways to qualify for a tax deduction by the Energy Policy Act because of the energy savings involved.

Answer: FalseThe simple reason is that lamp replacements are accounted for as maintenance expense and not as investment. However, because they are accounted for as expense, they reduce income that year, and decrease the taxes to be paid. In effect, the customer is getting 100% tax deduction on the money spent on lamps, even without bringing in EPACT!

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QUESTION 10:An outdoor parking lot may be a prime candidate for a lighting upgrade that qualifies for a tax deduction.

Answer: FalseThe tax deduction is only for the interior of buildings, not for outdoor lighting. An indoor parking garage may qualify.

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QUESTION 11:For a warehouse, as a tax deduction, you either get 60 cents per square foot or you get nothing.

Answer: TrueFor a warehouse to qualify, it has to be at or below half the watts per square foot specified in the ASHRAE/IESNA 90.1 (2001) document.

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QUESTION 12:Use of daylight to save energy wherever possible is rewarded by the Energy Policy Act.

Answer: FalseHowever, this is good practice because the energy savings can still be attractive.

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Answer: TrueFor example, if a certain portion of the building is clearly defined as a manufacturing area, it should be possible to apply the manufacturing lighting standards to this area. Accounting for an entire building which has multiple areas under different categories (e.g. office and manufacturing) becomes more complex.

QUESTION 13:It is possible to apply for a tax deduction for a portion of the building.

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QUESTION 14:You can take the allowed tax deduction no matter how much you spent on the lighting upgrade.

Answer: FalseYou can only take the permitted tax deduction up to the value of the asset--in this case the lighting equipment. You cannot take a deduction for more than you have spent.

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QUESTION 15:All lighting retrofit investments end up being deducted from income over time; the benefit of EPACT is that it allows a larger portion of the capital investment to be deducted in the first year.

Answer: TrueGenerally, lighting retrofit investments are amortized over the life of the system; the Energy Policy Act allows a larger portion to be amortized or depreciated in the first year.

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QUESTION 16:Whoever pays the energy bill, and therefore, benefits from the energy-saving retrofit is always eligible for the tax deduction.

Answer: FalseThe tax deduction is available to the entity that is carrying the fixtures as an asset on their books, not necessarily the entity that is paying the electric bill.

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QUESTION 17:With a few exceptions, all spaces must have bi-level switching to qualify for the tax deduction.

Answer: TrueThe exemptions are: lobbies, motel/hotel guest rooms, rest rooms and store rooms.

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QUESTION 18:The watts-per-square foot numbers used in the Energy Policy Act of 2005 come from the 2001 version of the ASHRAE/IESNA 90.1 document, not the most recent version.

Answer: TrueThe current (most recent) document is ASHRAE/IESNA 90.1 (2004). The Energy Policy Act refers to the numbers in an earlier (2001) version of the document.

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QUESTION 19:Non-profit organizations can still take a tax deduction if the lighting qualifies.

Answer: FalseNon-profit organizations pay no taxes, anyway. IRS is trying to figure out how a non-profit facility owned by a federal, state or local government, can transfer some of the benefits or incentives to the designer or installer of the lighting system, as suggested in the Bill.

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QUESTION 20:Labor for installing the new fixtures is not included in the book value of investment for retrofit, only the cost of materials.

Answer: FalseLabor to put up the new fixtures is considered part of the asset value. The labor to take down the old fixture (demolition) is considered a simple expense and cannot be capitalized.