Architects – you may have some “green” coming your way
Going green is an incredibly hot topic in every industry. However, most people are not aware that going green can actually save your company money. I’d like to highlight one very important nuance of the §179D deduction that applies specifically to architects and design build contactors who perform work for government owned buildings.
Background: §179D is a section of the IRS code specifically related to green property. It allows taxpayers to accelerate the deductibility of costs incurred to make qualifying energy-efficient improvements to commercial buildings. If they qualify for the deduction, taxpayers can immediately deduct costs that would ordinarily be depreciated over as many as 39 years. To qualify, energy-efficient improvements must reduce total annual energy costs with respect to the interior lighting systems, HVAC and hot water systems by 50%. Partial deductions are allowable if energy efficiency improves by less than fifty percent.
When Architects Benefit: There is an exception for property owned by a Federal, State, or local government. Because the owner of the building doesn’t benefit from extra tax deductions they may allocate the §179D deduction to the person primarily responsible for designing the property. The designer is allowed a deduction during the tax year in which the property is placed in service. The maximum amount of the §179D deduction allocable is $1.80 per square foot. Partial deductions are also available.
If more than one designer is responsible for designing the qualifying property, the owner of the government building will:
- Determine which designer is primarily responsible and allocate the full deduction to that designer, or
- At the owner’s discretion, allocate the deduction among several designers.
Application: Before a designer can claim the §179D deduction, a written allocation of the deduction must be obtained from the government building’s owner. The designer is not required to attach the written allocation to their tax return, but instead must retain the letter for their files. The owner of the government building is required to reduce their basis in the building by the amount of all §179D deductions allocated to third parties. On a project with multiple designers, make sure to apply early because multiple vendors can qualify for the deduction. Keep in mind that this nuance only applies to government owned buildings.
Architects and design build contractors who work extensively on government projects should work closely with their accountants to ensure their ability to benefit from the above mentioned tax deductions. To find out more contact us or attend our upcoming seminar.