They’re signed by both the designer and someone within the government entity that has the authority to do so. These documents state that a building meets Section 179D’s energy and power cost requirements. They must also sign a certification document for the Section 179D deduction stating they’ve examined the energy model and support the allocation of the deduction to its respective designer. The third party must review the results of the energy model and verify the improvements meet the applicable energy-savings thresholds using the ASHRAE standards. The qualified third party must be contractor or professional engineer (PE) who’s licensed in the state where the building is located. The third-party also completes a physical site visit of the facility. The energy model then compares the building’s performance with a reference building that meets relevant energy and power cost requirements, according to standards set by the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE). In a Section 179D study, a qualified third-party-separate from the designer taking the Section 179D deduction-uses IRS-approved energy software to model the energy performance of the building and improvements. This can also be done retroactively if a company files an amended return. A company that’s claiming the credit for only one system, for example, the HVAC system, would claim the credit at $.60 per square foot. The deduction can be up to $1.80 per square foot, adjusted for inflation. If the entity meets the requirements of the study, it can report the deduction on its current-year tax return. For instance, contractors that are engaged on a design-build contract with a government entity are more likely to qualify for the Section 179D deduction than if they’re only operating as a project manager.Ī company claims the Section 179 deduction by receiving a Section 179D study in the same tax year as when the building is placed in service. Construction ContractorsĪ construction contractor may qualify for the Section 179D deduction if they have input in the design or are obligated to participate in the design based on their contract terms. For example, a mechanical engineering firm that’s only involved in the design of a HVAC system in a government-owned building would only be able to take the deduction for the portion derived by the HVAC system. That said, a company can only claim the deduction for building design elements for which they’re directly responsible. Heating, ventilation, and air conditioning (HVAC) system.As a result, they’re likely to qualify for the Section 179D deduction for improvements made to any of the following categories: Architects and EngineersĪrchitecture and engineering entities are typically responsible for designing a property’s technical specifications. Learn more about Section 179D eligibility in our Alert. Any entity that installs, repairs, or maintains a property doesn’t meet the definition of a designer for the purposes of this deduction. The purpose of the deduction is to incentivize designers of government-owned buildings to utilize energy efficient systems and components within the construction projects.Īn entity is considered responsible for the building’s design components if it creates the technical specifications for a building. The Section 179D deduction can be allocated to engineering, architecture, and construction entities that are responsible for the design components of government-owned, energy-efficient buildings.īecause the owners of these public buildings are nontaxable entities, the deduction is then passed on to the primary designers of the buildings-in this case, engineering, architecture, and construction entities that qualify as designers.
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