4 minute read
Lighting the Path to Savings, Revisited
What the One Big Beautiful Bill Means for Lighting Contractors
By Parker Allen
When LM&M first spoke with Frank Austin of TaxCentric Lighting in July 2024, the discussion centered on key federal tax deductions that could dramatically improve the payback period for lighting upgrade projects.
Austin explained how tools like bonus depreciation, qualified improvement property (QIP) reclassification, and partial asset disposition could be leveraged to reduce upfront project costs. In short, a contractor who understood the tax side of lighting could help a client recover much of their investment in the first year and drastically reduce the payback period of lighting upgrade projects.
A NEW BILL, A NEW LANDSCAPE
A year later, the landscape has changed. The One Big Beautiful Bill Act (OBBBA) went into effect on July 4, 2025, and applies retroactively to projects placed in service after January 20, 2025. Among many provisions, OBBBA reshaped several sections of the tax code that directly affect LED lighting upgrades.
The big news, Austin explained, is that bonus depreciation is back to 100 percent permanently. Under previous rules, that bonus was set to taper off from 60 percent in 2024 to 40 percent in 2025, 20 percent in 2026, and eventually phase out altogether.
The OBBBA reversed that course entirely, reinstating the full 100 percent deduction for qualified assets and eliminating the scheduled step-down.
BONUS DEPRECIATION AND QIP: THE CORE ADVANTAGE
Under OBBBA, 100 percent bonus depreciation now applies to all capitalized assets depreciable over 20 years or less. Lighting, however, remains a 39-year asset under the IRS tax code, unless it can be reclassified as Qualified Improvement Property (QIP).
“Through QIP, an LED lighting upgrade can be reclassified as a 15-year asset,” Austin explained. “That makes it eligible for the full 100 percent deduction in the first year.”
But, this isn’t as simple as filing a different form. “You must document the improvement properly. If you get audited and can’t provide proof that your lighting qualified as a property improvement, that 100 percent write-off could become a big fine waiting to happen,” he cautioned.
TaxCentric Lighting prepares documentation designed to withstand an IRS audit, ensuring that clients can safely claim the deduction without risking penalties.
PARTIAL ASSET DISPOSITION REMAINS IN PLAY
While bonus depreciation saw the biggest change, the OBBBA left partial asset disposition rules untouched—a relief to many in the lighting industry. Partial asset disposition allows building owners to write off the remaining depreciable value of the old lighting system when it’s removed or replaced.
“If you remove fixtures that still had 20 or 25 years of depreciation left, you can deduct that remaining value immediately,” Austin noted. “That’s a huge cash-flow advantage, and it keeps your books clean by removing what the IRS calls ‘ghost assets’—items you no longer own but are still depreciating.”
When combined, these two deductions—bonus depreciation and partial asset disposition—can cover anywhere from 40 to 110 percent of the installed cost of a new lighting upgrade before factoring in energy or maintenance savings.
WHAT’S BEING PHASED OUT
Not all deductions survived untouched. The Section 179D deduction, originally created under the Energy Policy Act of 2005, will begin to phase out by mid-2026, though it will still apply to projects already underway before that deadline.
The deduction amount remains the same, but contractors should prioritize projects that qualify under the older rules before the phase-out is complete.
DOCUMENTATION IS EVERYTHING
Austin emphasized that while these deductions represent enormous opportunities, they come with one major caveat: documentation. “You wouldn’t drive without a license, registration, or insurance,” he analogized. “If you take a 100 percent deduction on a 39-year asset without a QIP letter, it’s the same thing—you’re asking for trouble.”
For contractors, the takeaway is clear: Understanding the rules is only half the battle. Ensuring your client’s accountant or tax department has the proper documentation can make the difference between saving hundreds of thousands and triggering an audit. “We build the bridge between the lighting world and the tax world,” Austin says. “That’s what TaxCentric Lighting was created to do.”
WHY THIS MATTERS FOR CONTRACTORS
Austin’s message to contractors is pragmatic: you don’t need to be a tax expert, but you do need to know these opportunities exist. When bids are tight, the ability to show clients how they can recoup the majority of their investment through deductions can turn a “maybe” into a “yes.”
Lighting professionals who understand these deductions can position themselves as trusted advisors, not just vendors. “You can win more projects, and you can do it profitably,” Austin added. “Because once the client sees the tax savings, price becomes less of an issue.”
