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Section 179D, the energy efficient commercial buildings deduction, is a powerful tax incentive created for commercial building owners and designers of buildings owned by tax-exempt and government entities. This incentive allows eligible taxpayers to claim up to $5.00 per square foot for their work on energy-efficient systems. As an architecture or engineering design firm, there are many ways to benefit from this powerful tax incentive.

How Can You Qualify for Section 179D?

 

1. Designers of Properties Owned by Tax-Exempt and Government Entities – IRS Notice 2008-40 specifies that government-building owners can allocate the Section 179D deduction to eligible designers of newly constructed, expanded, or renovated government-owned properties. The Inflation Reduction Act of 2022 expanded this to allow tax-exempt entities to also allocate the deduction. Architects and engineers of these projects can receive the allocation, allowing them to claim the deduction in the tax year that the work was complete. Many entities have processes set up to allocate these deductions to eligible designers.

Below are a few examples of eligible entities:

      • K-12 Schools
      • Universities
      • Hospitals
      • Police and Fire Stations
      • Libraries
      • Transportation Facilities
      • Convention Centers and Stadiums
      • Airports
      • Military Facilities
      • Courthouses
      • Post Offices
      • Museums
      • Religious Facilities

2. Commercial Building Owner – Any firm that has newly constructed, expanded, or renovated their property after January 1, 2006, can qualify for this deduction.

As the owner, the basis of the building will be reduced by the deduction claimed. In many instances, this analysis can be combined with a cost segregation study to maximize the benefit.

How Can You Maximize Your Tax Position With Section 179D

When considering Section 179D, working with a licensed CPA is important to ensure the benefit will maximize your tax savings. Calvetti Ferguson has provided options below for design firms to benefit from Section 179D when the tax position is not favorable to claim all eligible projects.

  • Tax Carry Forward – In some cases, a tax year may not have the taxable income to support taking the deductions identified through Section 179D. In such cases, the IRS allows losses because of these deductions to be carried forward up to 20 years to be applied to future tax liability.
  • Allocation Sharing – For sizeable properties, the full deduction may be larger than what is ideal for one design firm to claim. The IRS specifies that eligible non-taxpaying building owners have the discretion to allocate the deduction among multiple designers. This allows design teams to share the benefit across the firms that are eligible to claim the deduction.
  • Recommending a Reputable 179D Provider to Design Firms and Clients – In unique instances, an architecture or engineering firm cannot claim the 179D deduction. Recommending a reputable 179D provider to your clients or design team partners will allow you to strengthen relationships by providing information about a powerful tax incentive they may not already be aware of.

How Can Calvetti Ferguson Assist you?

Calvetti Ferguson has licensed CPAs and professional engineers who can guide you through the entire Section 179D process. Unlike other firms, we have tax and design industry expertise and can provide tax planning services while reducing your tax liability through this powerful incentive. We work with all sizes and types of firms and are ready to assist you and your clients.

Bryan Valencia, CPA

Tax Partner

832-782-5925
Email Me

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