Bipartisan Budget Bill Extends 179D Tax Benefits for Architects, Engineers and Contractors

While the recently passed Tax Cuts and Jobs Act benefited architects and engineers by including them in the Section 199A provision (providing 20% deduction on income), Section 179D, which provides significant benefits for design, building and modification of energy efficient buildings, was set to expire.

Thankfully, the just-passed Bipartisan Budget Bill extends the 179D tax benefits within a three-year statute of limitations through December 31, 2017. Architects, engineers and contractors who work on federal, state or local government contracts stand to reap significant benefits from this provision and should be aware of the details.

The maximum benefit of $1.80 per square foot is available for energy-efficient design for state, federal and local government buildings as well as state colleges and universities. Qualified buildings must also surpass 2007 ASHRAE standards, although this is usually part and parcel of the final building product, given today’s demand for energy efficient buildings.

Ensuring that you have all documentation in order and are applying for the deduction in an appropriate manner requires the assistance of your accounting professional. Here are four questions that we recommend you consider as you approach applying for the 179D deduction:

1. Did you perform eligible work? During the time period covered by the law, all federal, state, and local government buildings are eligible, whether newly constructed or renovated.
2. Is the building energy-efficient? To qualify for the deduction, the building must surpass American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE) standards. Most state building codes already require better performance. The installation of any modern, efficient lighting, HVAC or water-heating equipment is likely to qualify, as is the use of low-heat transfer glass, shading, insulation or heat storage construction in the building envelope.
3. Just how energy-efficient is it? An independent engineering firm must measure the building’s energy efficiency and, consequently, the amount of the tax benefit. It’s important to work with engineers who understand Sec. 179D.
4. Do you have the required documentation? You’ll need a signed allocation letter from the government building owner, assigning the tax benefits to your company. This is a time-sensitive step, because others involved in the project’s design or construction may also be seeking the same letter and benefits. It’s a first come, first served scenario.

Smith and Howard works with many architectural, engineering and contracting businesses and routinely helps them determine their qualification for the Section 179D deduction. If you’d like more information or assistance from a member of our team with your business, please fill out the form below or call Mark Abrams, Marvin Willis or Paul Atkinson at 404-874-6244.