Mueller Prost CPA, Partner and Director of Real Estate and Construction Teri Samples says end-of-year extender legislation, signed Dec. 20, has extended the opportunity for construction project owners and partners to gain a tax deduction and accelerated depreciation specific to energy efficiency.
At Mueller Prost’s “”Foundations for Success: What to Expect in Real Estate and Construction in 2020” event last week, Samples articulated the details of IRS Code Section 179D, which offers a $1.80-per-square-foot deduction to project owners, contractors, subs, engineers and designers if they meet certain criteria with regard to new construction or improvements in three components: lighting, HVAC or the building envelope.
“Up to 60 cents per component is eligible for a deduction,” said Samples. “The firm needs to meet 50 percent energy efficiency above the ASHRAE (American Society of Heating, Refrigerating and Air Conditioning Engineers) standard of 90.1-2007,” she added, noting that has been the standard to meet minimum requirements for the energy-efficient design of most commercial buildings.
Any buildings that have been built or improved from 2006 to the end of calendar 2020 are eligible. The applicant may combine this deduction with a cost segregation study for additional benefits and even shorter depreciation, according to Samples. Companies do not need to file an amended return in order to apply for the deduction, she says, but rather just claim missed deductions in the current year by completing and filing IRS Form 3115.
If the energy-efficient project belongs to a public entity (such as a government building or a school), because that entity does not pay federal income taxes, it may allocate the 179D deduction to the project partners who performed the work – such as design and engineering firms. “In that situation, the (government) organization would have to amend its tax return and their window of opportunity is shorter…but they are able to go back three years,” Samples said.
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