Section 179D studies can offer both commercial building owners and designers of buildings owned by tax-exempt and government entities the ability to claim deductions for their work impacting the HVAC and hot water, interior lighting, and building envelope systems. At a maximum deduction of $5.00 per square foot, these deductions can quickly add up making them beneficial to companies across the country. Because of the highly technical nature of Section 179D, it is important to partner with a reputable firm that has tax and construction industry expertise, as well as a clear process for how these deductions will be calculated and substantiated.
At Calvetti Ferguson, we have outlined our Section 179D process which includes the four phases shown below.
Phase 1: Free Consultation and Benefit Estimate
During the first phase, our Section 179D engineering team will evaluate each potential project to provide a benefit and fee estimate for the work. Our team will request a project list and schedule a brief call to discuss the details for any eligible projects. During this call, we will review the scope of work performed, the taxpayer’s role, the cost, and the placed-in-service date of the project.
From this information, our team will prepare an estimate of the potential benefit and fee to complete the work. Although rare, claiming this deduction does not always result in a substantial benefit back to the taxpayer. For this reason, we always provide a benefit and fee estimate up front to allow the taxpayer to decide if proceeding with the study will be of value.
Phase 2: Documentation and Allocation Letters
After engaging Calvetti Ferguson for a Section 179D study, we will request the remaining documentation needed. Below is an example of what may be requested for the study.
- Project contract
- Construction drawings and specifications
- Certificate of substantial completion
- The final invoice for the project
- Record drawings and specifications of past projects at the eligible properties.
More documentation that is provided will enhance the accuracy of the energy modeling analysis and substantiate the claim for the Section 179D deduction. If some or all of these documents do not exist, we may request alternative items to ensure the study accurately reflects the work performed.
For designers of facilities owned by tax-exempt and government entities, the IRS requires that an allocation letter be executed by the building owner to claim the Section 179D deduction. We will prepare these allocation letters from the documentation provided and review them with the taxpayer. Once approved, our team will assist in educating building owners about the 179D program, how the taxpayer meets the requirements to receive the allocation, and what the building owner’s role and responsibilities are when signing a Section 179D allocation letter.
Phase 3: Energy Modeling Analysis and Field Inspection
The technical analysis can begin once Phase 2 of the study has been completed. This typically begins with a field inspection of the owned or allocated properties.
The purpose of the inspection is to visually verify that the energy-efficient equipment is installed, operational and matches the documentation that was provided. The IRS requires a third-party, qualified person, such as a professional engineer, to complete this inspection. Calvetti Ferguson has a professional engineer on staff who is licensed in multiple states and has over seven years of experience completing inspections. Thanks to the expertise of our team, this visit can typically be completed in an hour with minimal effort from the building owner.
A 3D energy model is then created utilizing the documentation collected from the taxpayer and the field inspection. Our engineering team will create a proposed and reference building model to determine the annual energy cost savings percentage. This percentage is then compared to the IRS guidelines to determine if the building has achieved a full or partial deduction. Our professional engineer reviews and certifies each deduction, as required by the IRS.
Phase 4: Deduction Delivery and Final Report
Once all building certifications are complete for a study, a summary of the deductions will be delivered to the taxpayer to be applied to the return. The allocation letters, energy modeling results, certifications, and field inspection reports are then compiled into a final report, marking the conclusion of the study.
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.