How Lighting Engineers Can Maximize 179D Tax Deductions with Energy-Efficient Design

If you are specifying LED lighting, daylight sensors, and modern occupancy controls, your projects are eligible for a Section 179D tax deduction study.. The question is how much of the deduction you can capture.

Section 179D allows commercial building owners and designers for public and non-profit projects to earn up to $5.81 per square foot in 2025 based on modeled energy cost savings over an ASHRAE 90.1 baseline. The more efficient the design, the higher the deduction. Our team handles all the modeling, review, and certification process in house. You simply need to design systems that perform well—and provide documentation.

This article explains how lighting designers and electrical engineers can increase the deduction through practical design strategies, technical best practices, and a real-world case study. A detailed checklist is also included to help apply these principles on every project.

Many Modern Lighting Projects Qualify for 179D — Here’s How to Increase the Deduction

LED lighting retrofits, integrated controls, and daylight sensors already place your designs well above the ASHRAE 90.1-2007 baseline requirements. For example, an office building that undergoes a full LED retrofit with lighting controls may have a lighting power density (LPD) of around 0.5 watts per square foot. The minimum LPD from ASHRAE 90.1-2007 for an office is 1.0 watts per square foot, significantly higher than the actual building specs! Because of this significant improvement, most new construction and full LED retrofit projects qualify for the minimum incentive, but high-performing systems that are thoughtfully designed and documented can reach the maximum energy savings and benefit.

Our team of Professional Engineers and 179D experts help translate technical performance into tax benefits. Our role includes running complex energy modeling simulations, preparing IRS-approved and required documentation, and performing the required site visits to verify the work has been completed. Your role is to design with performance in mind.

Understanding 179D Deduction Rates in 2025

The 2025 deduction is determined by the building’s energy cost savings, offering higher deductions for projects that achieve greater efficiency. The benefit is on a sliding scale, with increased benefit for increased energy savings. Projects that meet prevailing wage and apprenticeship (PW&A) requirements may also qualify for bonus rates. Here’s how it works:

Projects must meet prevailing wage and apprenticeship (PW&A) requirements to qualify for the higher rates. The only exception to the rule is for projects that began construction before January 29, 2023. These projects are grandfathered into the higher rates without meeting the prevailing wage and apprenticeship requirements.

The Technical Factors That Determine Deduction Value

You do not need to perform the modeling yourself—but your design decisions directly affect the results. Here are the most influential factors in how the lighting system performs in simulation:

• Lighting Power Density (LPD) compared to the ASHRAE baseline
• Granularity and logic of the zoning and control system
• Scheduling behavior and time-of-day logic
• Sensor layout, timeouts, and interaction with manual overrides
• Daylight harvesting design and sensor control logic
  

Every reduction in wattage and runtime translates into lower annual energy cost, which raises the deduction tier.

Lighting Design Strategies That Improve Energy Cost Savings

Lower Installed Lighting Power Density (LPD)

• Design and select low wattage lamps or fixtures
• Remove unnecessary fixtures or lamps if the minimum lighting levels can be met without them
• Use high-efficacy fixtures, task/ambient layering, and low-load zone lighting
• Target at least a 30 to 50 percent reduction from ASHRAE 90.1-2007 baseline values

Optimize Daylight Zones and Sensor Placement

• Implement continuous dimming rather than stepped dimming
• Document daylight zone boundaries, window orientation, and glass VLT
• Provide photosensor specs, placement, and zone assignments
  

Use Advanced Occupancy Control Logic

• Occupancy and vacancy sensors should be used in all enclosed spaces
• Timeout delays should be 15 minutes or less
• Specify sensor types and coverage clearly (PIR, ultrasonic, dual-tech)
  

Implement Effective Scheduling and Load Profiles

• Separate weekday and after-hours operation modes
• Reduce lighting levels automatically during low occupancy periods
• Define overrides and cleaning modes with return-to-auto behavior
  

Design with Granular Zoning for Real Use Patterns

• Zone lights by function, daylight availability, and usage profile
• Use room-level zoning wherever possible
• Avoid grouping diverse space types under shared control logic
  

Checklist: Make Your Lighting Project 179D-Ready

The below checklist includes considerations to be made during design and construction if you plan to pursue a 179D deduction.

By checking the above requirements, a 179D study can quickly and easily be performed as the project is completed. Better performance and better documentation will likely increase the per square foot value.

Case Study: Hospital Lighting Upgrade That Unlocked $1.2M in 179D Benefits

Project: Nonprofit hospital in Michigan
Completion Date: September 2023
Total Project Cost: $1.5 million
Lighting Scope: Energy-efficient LED fixture upgrade

Results:

• 179D Deduction Claimed: $1,200,000
• Deduction Recipient: Lighting designer
  
  

The hospital upgraded its lighting system as part of a renovation completed in September 2023, improving energy performance and reducing long-term operational costs. Because the building owner does not owe Federal tax, the 179D program allows the benefit to be allocated to the lighting designer responsible for the design of the energy efficient upgrade.

The overall LED retrofit project impacted three buildings on the hospital campus. On average the LPD was approximately 70% lower than the minimum standards outlined in ASHRAE 90.1-2007, which accounts for typical fluorescent lighting. This significant decrease in overall wattage led to increased energy savings and 179D benefit for the lighting designer, as well as significant utility rebates for the building owner.

Final Thoughts: Design Decisions Drive Dollars in 179D Projects

It’s likely you are already designing lighting systems that exceed ASHRAE 90.1-2007 minimums and are eligible to claim benefit through the Section 179D program. The difference between a $2.90 and a $5.81 deduction per square foot (or a $0.58 and a $1.16, if you don’t meet PW&A) is determined by design decisions you control and can easily navigate during the development of the project.

Our team of engineers are here to pick up your energy-efficient designs and turn them into tax benefit. We provide turn-key services that include the complex energy modeling, site visit, and certification needed to capture every dollar. If you are interested to learn more, our team can assist with….

• Project eligibility review and estimation at no cost
• Education and collaboration with you and your accounting team
• Project review and detailed energy modeling analysis utilizing IRS-approved methods
• Site visit and consultation with our Professional Engineers
• Allocation letter support for designers of public and tax-exempt projects
• High quality documentation of the study including certification and tax forms
  
  

If you have a project in design or construction, let us evaluate the 179D opportunity. Most projects already qualify. With a few technical refinements, they can do even more.