Most of you have probably been following the recent actions of Congress related to our Federal budget debates and the near government shutdowns. I imagine you are also aware that a $400 billion budget deal made its way through Congress and was signed by President Trump on February 9 breaking through prior spending caps and suspending the debt limit for a year. What you might not be aware of is that this whopping 652-page document includes some very welcome tax news. Of significant interest to the architectural and engineering industry is the one-year extension of the Energy-Efficient Commercial Building Deduction (Section 179D). This deduction has brought considerable tax savings to firm’s who perform design work for governmental agencies.
What is the 179D Deduction?
The Energy Policy Act (EPAct) was designed to encourage investment in energy-saving initiatives by providing special deductions for firms working on government-owned or leased buildings. The available deduction is up to $1.80 per square foot for commercial buildings that have installed energy-efficient lighting, HVAC, or building envelope and allows the governmental entity to assign the deduction to the person primarily responsible for performing the design work.
The definition of a government building is a building owned or operated or leased by a federal, state or local government authority or agency. Projects may be for new construction or a retrofit of an existing building. Previously, the projects needed to be completed and placed in service between January 1, 2006, and December 31, 2016. Projects must meet Federal standards, which many local building codes already require. The recently enacted budget act extends the provision to include projects completed and placed in service through December 31, 2017.
What Should I Do Now?
If you completed projects for governmental units during 2017, the time to take action and capture these tax savings is NOW. First, the governmental unit must provide the designer with an allocation letter permitting them to take the deduction. The energy efficiency is then certified by an independent engineer using an IRS-approved software.
There are two opportunities to claim the deduction. First, on projects completed in 2017, you may claim the deduction on your originally filed 2017 return and second for projects completed from 2014 to 2016, you may file an amended return assuming no other designer has claimed the deduction. It’s important to note that designers working on the same project can share the deduction. The key, however, is to act now – the opportunity to amend 2014 returns could expire as early as March 15, 2018.
We recommend that firms be proactive and obtain allocation letters for projects with expected completion dates beyond 2017 assuming provisions will be extended again. With tax time upon us, if you find yourself in need of assistance to swiftly coordinate these deductions, please reach out to me today to discuss your options.