Architectural or Design Company Tax Breaks

Architect firm tax breaks

Photo: Malachi Witt

Over the past several years, Congress has placed a great deal of emphasis on green building and energy-independence initiatives. A valuable initiative for designers, architects and builders is the Energy-Efficient Commercial Building Deduction, better known as Section 179D of the IRS tax code.

The 179D tax deduction originally was passed by Congress as part of the Energy Policy Act of 2005 in response to the need for broader energy efficiency. Even though the deduction has been available for 12 years, companies in a variety of industries still are not aware that it applies to research and development (R&D). Federal and state R&D tax-credit programs can provide cash incentives for companies conducting R&D in the United States. According to one study, only 1 in 20 businesses eligible to claim these credits and incentives is actually claiming them. Many companies are either unaware of or assume they do not qualify for these credits.

How the 179D Tax Deduction Works

Buildings are responsible for 73 percent of all electricity consumption, according to the U.S. Department of Energy. To encourage energy efficiency, Section 179D allows qualifying building owners and businesses to receive a tax deduction for their energy-efficient buildings.

Managers should be aware of the following facts:

  • The R&D Tax Credit and other related tax breaks save U.S. businesses more than $12 billion annually.
  • Energy-consumption cost reductions of as little as 10 percent can result in substantial tax savings.
  • Under recent government regulations, more industries qualify for the R&D Tax Credit than ever before. Companies that design, develop or improve products, processes, techniques, formulas, inventions or software may be eligible. And companies that have invested time, money and resources toward the improvement of their products and process also qualify.
  • The R&D Tax Credit regulations allow eligible taxpayers to “look back” to all open tax years (typically three years plus the current year) for potential research credits that were never claimed.

How to Qualify

Energy-based improvements must be made to the HVAC or interior lighting systems or to the building’s envelope.  Enhancements to these systems must surpass the relevant American Society of Heating, Refrigerating and Air-Conditioning Engineers standards.

Architectural firms may benefit if their activities and innovations eligible for R&D tax incentives address any the following:

  • Develop unique energy-efficient features
  • Design master plans
  • Develop schematic designs
  • Develop planning and elevation drawings and develop construction documents
  • Design and develop building facades
  • Achieve LEED certification
  • Design building systems
  • Design site orientations and the buildings’ shape and form

Designers and Builders of Government-Owned Buildings Qualify

Because government entities do not traditionally pay taxes, the owners of these buildings can allocate the accrued tax savings to the business responsible for the energy-saving enhancements. But government-owned buildings at the federal, state or local levels can all potentially qualify for 179D, including schools, state universities, libraries, town halls, airports, transportation facilities, post offices, courthouses, military bases, government offices, and institutions.

This is a complicated deduction, and the details can change. Fortunately, we are available to ensure that you get the tax breaks for which your company is eligible. Give us a call today.

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