May 11, 2018
By Andy Gerstenhaber, alliantgroup Director of Energy Credits and Incentives
The American Institute of Architects
The 179D tax deduction is helping some architecture firms save hundreds of thousands of dollars a year; AIA partner alliantgroup breaks down the benefits
Earlier this year, architects, engineers, and contractors received some excellent news when the section 179D tax deduction for energy efficient buildings was retroactively extended for the 2017 tax year.
Since its inception in 2005, section 179D has proven to not only be sound energy policy but a vital incentive for our nation’s designers and builders. “Encouraging energy-efficient building significantly supports the policy goals of Congress of energy independence and energy efficiency for our nation, while at the same time reducing costs for both businesses and taxpayers,” said Rick Lazio, alliantgroup’s senior vice president and a former US Congressman from New York, in testimony before the House Ways and Means Tax Policy Subcommittee earlier this year.
If you’re unfamiliar with 179D, here’s a look at what the deduction could mean for your business.
What is 179D?
To combat energy issues that the country was—and still is—facing, Congress passed the Energy Policy Act of 2005; one component of that legislation was the Energy-Efficient Commercial Building Deduction (179D), relating to the design and installation of interior lighting, HVAC, and the building envelope. Additionally, the enhancements to these systems must surpass ASHRAE 2001 standards for buildings placed into service before 2016—and ASHRAE 2007 standards thereafter.
Through this energy-saving incentive, qualifying building owners and businesses can receive up to $1.80 per square foot in tax deductions for eligible interior lighting, HVAC, and building envelope projects placed into service from 2006 to 2017. Also, any accrued tax deductions from these buildings can be carried back two tax years or can be carried forward for up to 20 years.
Designers of government-owned buildings can also get the benefit under a special rule for public property. Eligible designers, such as architects, are those that have performed energy-efficient work on new government buildings or renovations of existing government buildings.
Why should architects care?
Building operators want more energy-efficient buildings, for economic and energy usage reasons: the average building wastes 30 percent of the energy that it consumes due to inefficiencies.
Architecture firms are prime candidates for the deduction, as they have historically received generous returns for their creative solutions to efficiency problems thanks to 179D. In a recent internal study, one firm working on a government contract was able to receive a deduction of more than $50,000 on a project of roughly 29,000 square feet. Another study showcases a firm that was able to claim $677,442 in 179D tax deductions for its work with government buildings.
Government-owned buildings at the federal, state, or local levels can all potentially qualify an architecture firm for 179D. Eligible buildings include, but are not limited to:
- State universities
- Town halls
- Transportation facilities
- Post offices
- Military bases
- Government offices
- Correctional facilities
There are multiple methods to securing 179D and different levels of deductions depending on the energy efficiency levels that a project meets, so it’s extremely important that firms fully explore their options with regard to 179D to ensure they aren’t missing out.
Click here to learn more about 179D and alliantgroup, the official sponsor of 179D and other tax services for AIA.
Andy Gerstenhaber, AIA, is director of energy incentives at alliantgroup and has been instrumental in helping hundreds of architecture, engineering, and contracting firms claim valuable energy incentives through the Energy-Efficient Commercial Building Deduction, more commonly referred to as section 179D.
Would you like additional information or do you have questions?