Yes, there is a federal-level tax incentive for your large scale lighting improvement / retrofit project that will reduce your expenditures for your renovation.

As enacted in The Energy Policy Act of 2005 (hereinafter “EPAct”), the I.R.C. § 179D Energy Tax Deduction for building envelope efficiency encourages building owners to “Build Green” to not only save money by reducing their utility bills on a carryforward basis, but to also reduce their tax liability on their tax returns as well.

As a synopsis of I.R.C. § 179D, commercial building owners can take a federal-level tax deduction of up to $1.80 per square foot of the building’s envelope if they install property that reduces energy and power costs. These installations need to be a part of the building’s interior lighting systems (i.e., up to .60 per square foot); Heating, Ventilation, and Air Conditioning systems (hereinafter “HVAC”; i.e., .60 per square foot for newly installed HVAC equipment); or building envelope (i.e., .60 cents per square foot for windows, doors, roofs or insulation). The deduction is allowed for both new construction and remodeling and the building must be placed in service between 2006 through 2013.

In order to achieve the maximum $1.80 per square foot under the I.R.C. § 179D energy tax deduction for building envelope efficiency, energy and power costs must be reduced by at least 50 percent when compared to a reference building. If a building comes in under 50 percent, it may still qualify for a deduction of $.60 or $1.20 per square foot by looking at individual systems. For partial deductions, the requirement for the building envelope is a 10 percent improvement. For lighting and HVAC/hot water systems, the improvement must reach a 20 percent threshold. Additionally, there are special rules for lighting-only projects applicable to both new construction and retrofits, which use a graduated scale. The standards for the reference building are somewhat dated and the thresholds can often be met through current design techniques.

It should be duly noted that this federal tax incentive is a tax deduction rather than a tax credit, meaning that the cash benefit is calculated by multiplying the deduction times the tax rate, which is usually 40%.

The subsequent examples of energy-efficient building materials and systems include, but are not limited to:

1) High-efficiency insulation in walls, ceilings, roofs and floors;
2) Automatic thermostats, lighting controls and other monitoring equipment;
3) Energy-efficient fixtures;
4) Ultra-efficient air conditioners and furnaces;
5) High-performance glazing and other energy-efficient materials on the building envelope;
6) Natural ventilation;
7) Day-lighting; and
8) Improved fan efficiency.

More specifically in connection to your lighting improvement / retrofit inquiry for your hotel property, I.R.C. § 179D offers an accelerated tax deduction equal to the complete cost of installing energy-efficient interior lighting, capped at $0.30 to $0.60 per square foot proportional to Lighting Power Density (hereinafter “LPD”, calculated as Watts per Square Foot) reduction levels of 25% to 40%.

Please consult the below LPD values prescribed in The American Society of Heating, Refrigerating and Air Conditioning Engineers (hereinafter “ASHRAE”) Standard 90.1-2001. These values will illustrate the LPD percentage reduction beyond Standard 90.1-2001 and the corresponding amount of eligible tax deduction per square foot:

25% $0.30
26% $0.32
27% $0.34
28% $0.36
29% $0.38
30% $0.40
31% $0.42
32% $0.44
33% $0.46
34% $0.48
35% $0.50
36% $0.52
37% $0.54
38% $0.56
39% $0.58
40% $0.60
>40% $0.60