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179D Deductions as Architect/Primary Designer

Note: The §179D deduction is now a permanent part of the tax code. Now is the time for businesses to review their past and upcoming projects to determine whether they may qualify!

A large architectural firm on the West Coast had a dilemma. They had secured and performed on several government contracts (primarily school buildings), acting as a designer for the building construction and/or the energy retrofit. The great news was that the Company implemented positive efficiency systems for each and every building and made strong profits. The bad news was that the Company was facing significant tax liabilities over the multiple years of the projects.

Energy and Tax Challenges for Architectural Firm

•Continuing to support the community and school systems through energy initiatives.

•Eliminating tax burden while keeping cash flows strong.

•Utilizing tax opportunities through strategic planning.

•Continuing to grow the company to secure further projects and maintain cash from contract profits.

Community Impact of Energy Solutions

The architectural firm wanted to help government properties build and implement lighting, HVAC and envelope energy solutions. These solutions not only have an immediate impact on the quality of the light, air and performance of the buildings, but they also have long-term positive effects by promoting efficiency and sustainability.

Solutions

The Energy Policy Act of 2005, which went into effect on January 1, 2006, contains several tax measures, including deductions available under §179D. Section 179D allows “designers” of energy efficiency measures in government-owned buildings (non-taxpaying entities) to receive deductions of up to $0.60 per sq/ft for energy-efficient lighting design, $0.60 per sq/ft for HVAC and $0.60 per sq/ft for the building envelope, creating a potential deduction of $1.80 per sq/ft that could be directly taken by architectural firms and other designers. This is described in IRS Notice 2006-52 and amplified by IRS Notice 2008-40.

Based on the square footage of the multiple government buildings worked on as well as the sustainable design implemented by the firm, they were ultimately entitled to deductions nearing $7,000,000 over a 5-year span.

Utilizing these deductions enabled the firm to continue to support the sustainability of the community and eliminate an enormous amount of tax liability.

Are you a Primary Designer, Architect, or Contractor and want to learn more about taking the §179D Deduction? Contact Capital Review Group today at 877-666-5539.