In a lot of professions, it is important to understand how the tax code can affect a business operation. Architects and building engineers are no exceptions. One of the most important provisions that they should be aware of is the 179D Tax Deduction, commonly known as the Commercial Building Deduction.
179D gives architects and engineers a generous tax break if they are engaged in the design and construction of an energy-efficient building. Here are the steps in securing the tax break:
- A Government Letter
- An Independent Study Verifying the Building is Energy Efficient
- On-Site Visits By An Engineer
The first step is to procure the letter from the government. A building that meets the criteria enables everyone involved in the construction of the building benefit from the tax break.
The independent study is equally crucial. The process consists of the following:
- Thorough overview of the building
- Inspection of all elements of the building, and
- Vast knowledge of the law regarding 179D
The first step, thorough overview of the building, requires a skilled professional to spot the areas that might qualify for the 179D deduction. Tax deductions can come in the most unlikeliest of places. For instance, some deductions have occurred simply because of an engineer’s dedication to a fully-green HVAC system. An inspector will also check the lighting system, septic system, and base materials of the building to determine if they qualify. Thus, attention to detail is a very critical part of the job.
Finally, it’s a must that the inspector knows the nitty-gritty of the law to make a thorough inspection of all targeted design aspects of the building and find the best opportunities for tax savings.
Another qualifying requirement is being compliant under the 2001 version of ASHRAE standards. These codes help builders understand better whether or not they can get the tax break. The good news is, most newly constructed buildings are probably already fully compliant with the ASHRAE standards. Whereas, older buildings may require some renovations to qualify for tax deductions under 179D.
Essentially, there are other things about the nature of this law that experts need to know. For a starter, there is the building envelope and design, the HVAC system, and the interior lighting system. But just because a certain aspect of the building qualifies that doesn’t automatically qualify the rest of the building components. For instance, the lighting may meet the requirements, but the HVAC and the envelope don’t.
Lastly, the term “building” in 179D refers to:
- All commercial buildings
- All buildings greater than 50,000 total square feet
- Any government building
These buildings have a greater chance of at least partially qualifying for the 179D tax incentive. Even if the building is nothing more than a parking garage, it could still qualify for the tax deduction.
One of the best things about 179D is that it is retroactive. If a new designer or engineer is hired halfway through the construction process they can go back three years to secure the tax benefit as long as they can prove the building has been compliant for that amount of time.