By Jennifer Chin, National VP of EPAct §179D Business Services

Architectural firms that design schools, government and municipal properties may qualify for the EPAct §179D tax deduction.  This change came about in 2008 and is meant to incentivize a struggling construction industry to design and build sustainable properties.

Because government entities are tax exempt, they cannot use the §179D deduction. However, they can assign the deduction to an architectural firm by signing an allocation letter acknowledging the firm as the primary designer. On occasion, a firm will meet with a certain amount of resistance when requesting a signature.

To help alleviate this issue, it is important for the government entity to understand how the deduction works for the architectural firm. For example:

If a $100,000 deduction is confirmed, at a 35% tax rate it will equate to a $35,000 after-tax deduction. If you assume $12,000 in fees for third-party certification, the net benefit to the architectural firm is $23,000.

The §179D deduction is used to offset taxes owed. There is no way to truly share this deduction with a government entity. On occasion, we see firms offer to make a charitable contribution to the government entity or reduce their fee on a future project, but this is not necessary.

It is important the government entity is not viewed as requesting a kick-back for an incentive that was intended for architects. It is not up to the government entity to grant permission for an architectural firm to use this deduction but only to acknowledge them as the primary designer.

For more information on the EPAct §179D tax deduction and how it applies to architectural firms, watch our YouTube video. You can also visit us at sourcecorptax.com. SourceCorp is a national tax specialty firm that provides independent certification for EPAct §179D qualified properties.

For more information on EPAct §179D tax deductions, visit our virtual booth. http://bit.ly/hqKM2F