Section 179D Commercial Building Energy-Efficient Tax Deduction (Section 179D) is now permanent, allowing architecture, engineering, and construction firms to reap ongoing tax benefits.
Discover here how the Section 179D tax deduction may provide your business with considerable tax savings along with sector-specific requirements and limitations.
When implementing efficiency upgrades to commercial buildings that exceed specific energy standards, taxpayers can claim a Section 179D deduction and gain up to $1.80 per square foot. The $1.80 per square foot deduction is also now adjusted for inflation each year.
Section 179D was made permanent in the Consolidated Appropriations Act, 2021, on December 28, 2020. This reform implies that architects, engineering, and construction firms can claim the deduction after 2021, allowing them to prepare for and gain large tax savings from government building projects.
Can Engineering, Architecture, and Construction Firms Take Advantage of the Section 179D Deduction?
Yes. The Section 179D credit is available to engineering, architectural, and construction firms that design components of government-owned, energy-efficient buildings.
Because the owners of these public buildings are nontaxable organizations, the deduction is passed on to the structures' principal designers—in this example, engineering, architectural, and construction companies that qualify as designers. The deduction is intended to encourage designers of government-owned buildings to incorporate energy-efficient systems and components into their projects.
If an entity provides the technical requirements for a structure, it is regarded as accountable for the building's design components. For the purposes of this deduction, any entity that installs, fixes, or maintains a property does not fit the criteria of a designer.
Engineers & Architects
The technical requirements of a property are often designed by architecture and engineering firms. As a result, changes to any of the following areas are likely to qualify for the Section 179D deduction:
The building's envelope
HVAC (heating, ventilation, and air conditioning) system
System of lighting
However, a business can claim the deduction only for building design aspects for which they are directly responsible. A mechanical engineering firm, for example, that is only involved in the design of an HVAC system in a government-owned building would only be allowed to deduct the percentage obtained by the HVAC system.
A building contractor may be eligible for the Section 179D deduction if they contributed to the design or are required to engage in the design under the terms of their contract. Contractors working on a design-build contract with a government body, for example, are more likely to qualify for the Section 179D deduction than those working only as project managers.
How Can a Business Claim the Section 179D Deduction?
The Section 179 deduction is claimed by a corporation that receives a Section 179D study in the same tax year that the building is put into operation. If the entity meets the study's requirements, it can claim the deduction on its current-year tax return.
Adjusted for inflation, the discount can be up to $1.80 per square foot. A corporation that only claims credit for one system, such as the HVAC system, would claim the credit at $.60 per square foot. If a firm submits an updated return, this can also be done retrospectively.
Architects, engineering, and construction firms may benefit significantly from the Section 179D deduction. If you believe your firm may be eligible for the Section 179D deduction Contact us for assistance on energy c efficiency components for your projects.