The tax possibilities for LED lighting in car dealerships


With the restructuring of the US auto industry, the US auto market is now dominated by seven major consolidated auto companies: General Motors, Ford, Chrysler/Fiat, Toyota, Lexus, Hyundai and Honda. As US brands in particular recover, each is reintroducing itself as energy efficient, cutting fuel consumption across all car models and consolidating its number of dealerships. In an effort to reduce operating costs, these dealers invest in facilities that match their brand’s fuel efficiency efforts.

To get an idea of ​​the efforts US car brands are making to fuel efficiency, consider Ford’s new EcoBoost engine. According to Ford, the EcoBoost engine combines advanced direct injection technology and turbocharging with a gasoline engine. The end result is an engine that offers up to 20% less fuel consumption, 15% less CO2 emissions and improved driving performance compared to larger displacement engines.

Car dealers are interested in both energy-efficient interior lighting and energy-efficient exterior lighting. They are increasingly comfortable with LED lighting technology because they have seen it take hold in automotive headlight and taillight applications. LEDs are now being introduced in dealer showrooms and outdoor areas.

The Section 179D EPAct control options

Under Section 179D of the Energy Policy Act (EPAct), auto dealerships that make qualifying energy-saving investments in their new or existing locations can receive immediate tax deductions of up to $1.80 per square foot.

If the construction project is not eligible for the immediate EPAct maximum EPAct deduction of $1.80 per square foot, there are tax deductions of up to $0.60 per square foot for each of the three major building subsystems: lighting, HVAC (heating, ventilation and air). ). air conditioning) and the building envelope. The building envelope is any item on the perimeter of the building that touches the outside world, including the roof, walls, insulation, doors, windows, and foundation.

Unique Opportunity 2011: Improved Bonus Tax Deduction

Outdoor property lighting is normally eligible for MACRS depreciation, but building owners who install LED lighting systems after September 8, 2010 through December 31, 2011 are immediately eligible for a 100% depreciation tax rebate. Even if building owners miss this 2011 window, they can still enjoy a 50% tax depreciation bonus on equipment commissioned between January 1, 2011 and December 31, 2012.

outdoor lighting

Outdoor plaza lighting is lighting that only illuminates the landscape or building exterior (but not parking lots or walkways) as well as horticultural lighting, but is not related to the operation or maintenance of the building. Outdoor plaza lighting systems are typically pole-mounted or free-standing and are used to illuminate walkways, parking lots, or lounging areas.

For the first time in US tax history, 100% of the cost of an outdoor lighting project is tax deductible based on the additional depreciation benefits described above.

Restructuring of dealerships at Ford, General Motors and Chrysler

With the total number of U.S. dealerships down from more than 30,000 to about 18,000, if sales volume recovers, each dealership, by definition, must be a much larger facility capable of supporting higher sales and service volumes. There has been an overall decline in US auto sales over the past decade and a decline in the number of dealerships since the 1970s.

When energy-efficient tax incentives were first introduced in 2005, foreign car dealers were financially strong and focused on dominating the market for small, efficient cars, meaning it was mostly foreign brands making energy-efficient lighting upgrades at their dealership locations the EPAct tax savings. For example, Denver’s Emich Volkswagen has installed LED lighting throughout its new and used car store. The LED retrofit project reduced the energy used for Emich VW’s lighting by almost 80%, and the dealership will recoup its investment in approximately 18 months based on energy savings from its LED lighting and savings discounts provided by Xcel Energy and the city and the Denver County .

Due to their restructuring and the market demand for more efficient vehicles since 2008, American car brands have followed the example of their foreign counterparts.

Federal Lighting Bans

Dealers who have not upgraded their lighting in the past five or more years often have inefficient T-12 or metal halide lamps, the production or import of which is now banned by the federal government. Therefore, sooner or later these retailers will be forced to upgrade to more efficient lighting such as T-5 and T-8 fluorescent lighting or the new high-efficiency LED lighting.

LEDs are up to four times more energy efficient than traditional incandescent bulbs, meaning they can reduce energy running costs in two ways: energy savings and the associated tax savings.


Ford has discontinued its longtime Mercury brand. Accordingly, it has chosen to consolidate certain Ford and Lincoln dealerships across the country. Some Lincoln-Mercury only dealerships reported lower gross sales volume than Ford-only dealerships or Ford-Lincoln combined dealerships. While there are many factors that influenced Ford’s decision to downsize the Mercury brand, what is important is the impact a reduced number of brands will have on Ford’s dealership strategy going forward.

Fewer brands in its portfolio, combined with its improving financial situation, will allow the automaker to focus not only on product quality but also on cost cutting across the board. Ford’s projected annual operating profit of about $8 billion would be the best since a profit of $10.2 billion in 2000, when US auto sales were up 33 percent. Generating higher profits with lower sales volume has been a key to the company’s strategy since Chief Executive Alan Mulally arrived in October 2006. There are indications that some of the required building upgrades will range from $300,000 to $1,500,000 per trader. Some retailers balk at these numbers, which may lead to further closures unless retailers are receptive to the energy and tax savings that come with more efficient lighting devices. Upgrading to long life LED lighting is one way to reduce ongoing operational and maintenance costs.

General Motors

The largest reduction in dealerships has been at General Motors, which has downsized to four brands, namely Cadillac, Chevy, Buick and GM, after jettisoning Oldsmobile, Pontiac, Saab, Saturn and Hummer. GM has launched the largest and most widespread re-imaging plan in domestic auto dealerships. They sent inspectors to analyze every feature of their dealerships, including appearance, location, and overall quality. Many traders who were lucky enough not to be terminated are now required to make major facility upgrades.


Chrysler has partnered with Fiat, giving Fiat a significant US distribution network for its more fuel-efficient product line. Recently released dealer data indicated that the average Chrysler dealer fell to $150,000 before tax during the economic downturn. This means that a $15,000 reduction in energy operating costs equates to a 10 percent increase in pre-tax profit.

Dealers can combine energy-efficient LED lighting with energy-efficient HVAC in both the air-conditioned (air-conditioned) and non-air-conditioned portions of the facilities for $1.20 per square foot EPAct tax deductions.


The reshaped US automotive industry is increasingly focused on fuel efficiency, both for vehicles and for dealership facilities. By upgrading indoor and outdoor parking lot lighting to LED, retailers have the opportunity to significantly reduce their energy costs while realizing significant tax savings.