An architecture firm was hired by a local government entity to complete the designs for a renovation project on an 11,292 square-foot high school. With a goal of improving sustainability while reducing the school’s long-term operating expenses, the project incorporated various energy efficiency measures in the lighting, HVAC systems, and the building envelope.
Seeking ways to offset costs and minimize taxation after completing the project on the high school, the architecture firm consulted CRG to see if they would qualify for the §179D tax deduction for energy-efficient buildings. Our team determined that the firm was eligible for a $6,000 deduction based on improvements to property assets worth $8,000.
The §179D deduction for architects and other primary designers
The federal tax code provides a powerful incentive for the implementation of energy efficiency measures in commercial and public buildings: §179D, which offers a deduction of up to $0.60 per square foot each for qualifying improvements to a building’s lighting, HVAC and hot water systems, and the building envelope—for a total deduction of $1.80 per square foot for the whole building. As of 2021, §179D is a permanent part of the tax code, and the deduction amounts are indexed for inflation—representing an expanded opportunity for eligible taxpayers to maximize their savings.
The §179D deduction is available to commercial building owners, as well as the primary designers—such as the architects, engineers, and contractors—of qualifying energy efficiency measures for buildings owned by local, state, or federal governments. Since government entities do not pay taxes and therefore cannot utilize the deduction, they may transfer it to their primary designers via an allocation letter.
Claiming the §179D deduction
To qualify for the §179D deduction, building owners and primary designers must have their projects certified by a third party—such as CRG—to ensure that the energy efficiency measures satisfy the applicable ASHRAE Standard. Prior to 2021, this was ASHRAE 90.1-2007. However, under the new law that made the deduction permanent, projects completed in 2021 and beyond must meet the requirements of the ASHRAE Standard that was in effect as of two years before the start of construction.
Have you recently designed energy efficiency measures for a government-owned building? The team at CRG is here to help determine whether your business is eligible for the §179D deduction and identify other opportunities for tax savings. Contact us today to schedule a consultation!