What is the difference between a tax deduction and a tax credit?

The Commercial Buildings Deduction is a tax deduction, not a tax credit. A tax credit is a direct dollar-for-dollar reduction of tax liability. A tax deduction is a cost subtracted from adjusted gross income when calculating taxable income; therefore, tax liability is not reduced dollar for dollar, but in proportion to the taxpayer’s tax bracket.

Many lighting projects result in tax deductions. Under current law, the cost of the new lighting must be capitalized and depreciated over time. Under the lighting rules in the Commercial Buildings Deduction, the owner can write off the entire expense of the new lighting, capped at $0.60/sq.ft., in the taxable year that the lighting is placed in service. So it is an accelerated tax deduction.

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