179D Epact Tax Deduction

By claiming a Section 179D deduction, taxpayers can receive as much as $1.80 per square foot if they make efficiency improvements above certain energy thresholds to commercial buildings. The $1.80 per square foot deduction also now increases slightly each year to keep up with inflation.

On December 28, 2020, Section 179D was made a permanent part of the U.S. tax code in the Consolidated Appropriations Act of 2021. Now architecture, engineering, and construction companies can claim the deduction beyond 2021, so they can plan for and generate significant tax savings from construction projects for government entities.

Yes. The Section 179D deduction can be allocated to engineering, architecture, and construction entities responsible for the design components of government-owned, energy-efficient buildings.

Since the owners of these public buildings are nontaxable entities, the deduction goes to the primary designers of the buildings—the engineering, architecture, and construction entities that qualify as designers. The deduction incentivizes designers of government-owned buildings to utilize energy efficient systems and components within construction projects.

An entity is considered responsible for the building’s design components if it creates a building’s technical specifications. Any entity that installs, repairs, or maintains a property is not considered a designer for the purposes of this deduction.

No. If you claim the deduction as a designer of government-owned buildings, it won’t automatically trigger an audit from the IRS, but you must follow the right steps to determine qualification for the deduction.

The IRS Large Business and International division (LB&I) has created a Section 179D practice unit to provide a framework for designers that might be eligible to take the deduction. The Section 179D IRS practice unit has released a document that outlines the steps the IRS would take when auditing Section 179D studies.

You can claim the Section 179 deduction by commissioning a Section 179D study in the same tax year your building is placed in service. If your entity meets the requirements of the study, you can report the deduction on your current-year tax return.

The deduction can be up to $1.80 per square foot, adjusted for inflation. If you’re claiming the credit for only one system (for example, the HVAC system), you would claim the credit at $.60 per square foot. You can also do this retroactively if your company files an amended return.