The Tax Alternatives for LED Lighting in Automotive Dealerships

The Tax Alternatives for LED Lighting in Automotive Dealerships

The Tax Alternatives for LED Lighting in Automotive Dealerships

The Tax Alternatives for LED Lighting in Automotive Dealerships

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Within the wake of the restructuring of the US vehicle business, the US automotive market is now dominated by seven main consolidated automotive corporations: Common Motors, Ford, Chrysler/Fiat, Toyota, Lexus, Hyundai, and Honda. Particularly, because the US manufacturers get well, every is re-imaging itself as vitality environment friendly by driving down all automotive fashions’ gas consumption and consolidating their variety of dealerships. Within the quest to cut back working prices these sellers are investing in amenities that match their model’s gas effectivity efforts.

To get an thought of ​​the sort of gas effectivity efforts US auto manufacturers are making, contemplate Ford’s new EcoBoost engine. In accordance with Ford, the EcoBoost engine combines superior direct injection expertise and turbo-charging with a gasoline engine. The top result’s an engine that may ship as much as 20% higher gas economic system, 15% decrease CO2 emissions, and improved driving efficiency when in comparison with bigger displacement engines.

Automotive sellers are fascinated by each vitality environment friendly indoor lighting and vitality environment friendly out of doors lot lighting. They’re more and more very comfy with LED lighting expertise as a result of they’ve witnessed it mainstream into vehicle headlight and taillight functions. LED’s are actually mainstreaming into supplier showrooms and out of doors heaps.

The Part 179D EPAct Tax Alternatives

Pursuant to Power Coverage Act (EPAct) Part 179D, as a result of dealerships making qualifying energy-reducing investments of their new or current places can receive speedy tax deductions of as much as $1.80 per sq. foot.

If the constructing undertaking does not qualify for the utmost EPAct $1.80 per sq. foot speedy tax deduction, there are tax deductions of as much as $0.60 per sq. foot for every of the three main constructing subsystems: lighting, HVAC (heating, ventilating, and air-con), and the constructing envelope. The constructing envelope is each merchandise on the constructing’s exterior perimeter that touches the surface world together with roof, partitions, insulation, doorways, home windows and basis.

Distinctive 2011 Alternative: Enhanced Bonus Tax Depreciation

Outside lot lighting is ordinarily eligible for MACRS depreciation, however constructing house owners who set up LED lighting methods after September 8, 2010 by means of December 31, 2011 can take 100% depreciation tax bonus instantly. Even when constructing house owners miss this 2011 window, they will get pleasure from a 50% tax depreciation bonus on gear positioned in service from January 1, 2011 by means of December 31, 2012.

Outside Lot Lighting

Outside lot lighting is lighting that illuminates solely the landscaping or constructing exterior (however not parking areas or walkways) in addition to plant-grow lights, however which doesn’t relate to the operation or upkeep of the constructing. Outside lot lighting methods are often pole-mounted or freestanding and serve to light up sidewalks, parking or recreation areas.

For the primary time in US Tax Historical past, based mostly on the bonus depreciation advantages described above, 100% of the price of an outside lighting undertaking might be expensed for tax functions.

Seller Facility Restructuring at Ford, Common Motors and Chrysler

With the entire variety of US dealerships falling from greater than 30,000 to about 18,000, when gross sales volumes get well every dealership will by definition should be a a lot bigger facility able to supporting larger gross sales and repair volumes. There’s an general decline in US automotive gross sales during the last decade and a drop within the variety of automotive dealerships since 1970.

When vitality environment friendly tax incentives had been first enacted in 2005, overseas automotive sellers had been financially robust and centered on dominating the marketplace for small, environment friendly automobiles, which meant that it was primarily the overseas manufacturers that had been making vitality environment friendly lighting upgrades to their dealership places and benefiting from the EPAct tax financial savings. As an illustration, Emich Volkswagen of Denver has put in LED lighting all through its new and used automotive dealership. The LED retrofit undertaking lowered Emich VW’s lighting vitality use by practically 80% and the dealership will earn a return on its funding in roughly 18 months based mostly on vitality financial savings from its LED lighting and conservation rebates supplied by Xcel Power and the Metropolis and County of Denver .

Due to their restructuring and the market demand for extra environment friendly autos since 2008, American automotive manufacturers have adopted their overseas counterparts’ lead.

Federal Lighting Bans

Dealerships that haven’t upgraded lighting prior to now 5 or extra years typically have inefficient T-12 or metallic halide lighting whose manufacturing or importation is now banned by the federal authorities. Due to this fact, eventually these sellers might be compelled to improve to extra environment friendly lighting like T-5 and T-8 fluorescents, or the brand new extremely environment friendly LED lighting.

LED’s are as much as 4 instances extra vitality environment friendly than conventional incandescent bulbs, which implies that their skill to drive down vitality working prices is twofold: vitality financial savings and their associated tax financial savings.


Ford has shuttered its long-standing Mercury model. Accordingly, it has opted to consolidate sure Ford and Lincoln dealerships across the nation. Some solely mixed Lincoln-Mercury sellers skilled much less product sales quantity than Ford solely or mixed Ford-Lincoln dealerships. Whereas there are a lot of components that influenced Ford’s resolution to chop again on the Mercury model, what’s necessary is the impact a lowered variety of manufacturers can have on Ford’s dealership technique going ahead.

Fewer manufacturers in its portfolio, mixed with its enhancing monetary state of affairs, will enable the automaker to focus not solely on product high quality, but additionally on price reductions throughout the board. Ford’s anticipated annual working revenue of about $8 billion could be its finest displaying since a $10.2 billion revenue in 2000, when US business auto gross sales had been 33 % larger. Incomes larger earnings at a decrease gross sales quantity has been one of many keys to the corporate’s technique since Chief Government Alan Mulally arrived in October 2006. Indications are that a few of the required constructing upgrades will vary from $300,000 to $1,500,000 per dealership. Some sellers are balking at these figures, which can lead to extra closures except sellers are receptive to the vitality and tax financial savings that include extra environment friendly lighting gear. Upgrading to lengthy life vitality LED lighting is a technique to scale back ongoing working and upkeep prices.

Common Motors

The biggest dealership facility discount has been at Common Motors, which has slimmed itself right down to 4 manufacturers, particularly Cadillac, Chevy, Buick and GM after jettisoning Oldsmobile, Pontiac, Saab, Saturn and Hummer. GM has launched the biggest and most widespread re-imaging plan of the home automotive sellers. They despatched inspectors to research all of their dealerships’ amenities attributes, together with look, location and general high quality. Many dealerships that had been lucky sufficient to not be terminated are actually obligated to make main facility upgrades.


Chrysler has merged with Fiat, giving Fiat a significant US distribution community for its extra fuel-efficient product line. Just lately reported supplier information indicated that the common Chrysler supplier’s pre-tax earnings fell to $150,000 throughout the financial downturn. Which means that a $15,000 discount in facility vitality working prices equates to a ten% enhance in pre-tax earnings.

Sellers can mix vitality environment friendly LED lighting with vitality environment friendly HVAC in each the conditioned (air conditioned) and non-conditioned parts of the amenities for $1.20 per sq. foot EPAct tax deductions.


The newly configured US vehicle business is turning into increasingly more centered on gas effectivity, each for autos and the dealership amenities. By upgrading indoor and out of doors lot lighting to LED’s, dealerships have the chance to considerably scale back their vitality bills whereas realizing substantial tax financial savings.

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