New Developments for 179D Energy Efficiency Tax Incentive
Guest post by Kevin Sullivan of BRAYN Consulting LLC
In February of this year, Congress passed a budget that included a one-year extension of the Energy Efficient Commercial Building Deduction, Section 179D, making it available to architects, engineers, and contractors for building projects completed in 2017. For contractors, this means that the government building projects they completed in 2017 are now eligible for a federal tax deduction of up to $1.80 per square foot.
The incentive is available to designers and builders of local, state or federal building projects that are newly constructed or renovated. Think K-12 schools, libraries, university projects, prisons, military buildings, etc. Specifically, 179D applies to the design and construction of HVAC, interior lighting and building envelope systems. So, general contractors, energy service companies (ESCO), mechanical, electrical and specialty sub-contractors are all taking advantage of this incentive in a big way.
Promoting Energy-Efficient Construction
At its core, 179D is an incentive for the design and construction of energy efficient commercial buildings. Construction companies will often disqualify themselves because they don’t think their building project is energy efficient enough.
The truth is that the tax code only requires the HVAC, lighting and building envelope systems be as little as 10 percent more efficient than the 2001 or 2007 ASHRAE energy standard. Most current building codes already meet this requirement and the majority of newly-constructed and major renovation projects qualify.
How to Secure Your Deduction
The timing of this extension could not be better for contractors. In order to secure this incentive, an allocation letter needs to be obtained from each government building owner. Allocation letters are typically only given to one or two designers/builders on a project and the faster contractors request these letters, the better their chances at securing them.
There are numerous ways to obtain a deduction, and many different levels of deductions depending on the scope of work and calculated energy efficiency. I am a partner and the director of construction and real estate at BRAYN Consulting LLC, a specialty tax services company that works with architects, engineers and contractors in obtaining tax credits and incentives, such as 179D. We can help guide you through the process.
Contractors should seek out a third-party provider (as required by law) to help them in securing the allocation letters as soon as possible, and make sure the provider has in-house licensed professional engineers to certify each energy analysis (also required by law).
A Real-World Example
BRAYN secured a 2017 allocation letter for two projects on behalf of a general contractor for an elementary and high school renovation in the Houston area. An energy efficiency analysis was performed by a professional engineer using energy modeling software developed by the Department of Energy.
The high school project included a complete HVAC and lighting renovation and the analysis concluded that the energy efficiency qualified for the full $1.80 per square foot deduction. At over 200,000 square feet, the client was able to claim $400,000 in federal tax deductions. The elementary school had similar results and the contractor ended up claiming over $550,000 in federal deductions on their 2017 tax return.
Delivering a Decade of Energy—and Financial—Savings
Almost three quarters of all electricity in the United States is consumed by commercial buildings, and 179D has encouraged energy efficient construction for more than 10 years. More importantly, it has helped deliver millions of dollars in tax savings to architects, engineers and contractors to help them grow, hire and retain talent, allowing them to stay competitive.
BRAYN is a niche consulting firm that guides businesses to greater value through tax credits and incentives, such as R&D tax credits, 179D, Cost Segregation, Sales & Use/Excise Tax Recovery, and Management Consulting. We work collaboratively with your CPA firm to assist in the review, documentation, and substantiation of the tax incentives specific to your business. At BRAYN, we focus on building quality relationships where we are a key partner in driving business prosperity. For more information contact us at: (888) 773-8356 or [email protected].
Kevin Sullivan is P.E., LEED AP with BRAYN Consulting. His mission is to leverage his 15+ years of experience in the design and construction industry to help CPAs and their clients take full advantage of all federal and state tax incentives, credits, and deductions available to them. He is an award-winning expert on sustainable design and construction, and licensed as a professional engineer in more than 30 states.