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Section 179D for Building Designers.pdf

This presentation will cover the Energy Efficient Commercial Building Deduction under IRC §179D, with a focus on the allocation rule for building designers. The §179D Deduction is a Federal tax incentive that encourages the construction of energy-efficient buildings and the improvement of existing structures to reduce energy and power costs. The deduction provides a maximum of up to $1.80 per square foot of a building's floor area and applies to various systems such as interior lighting, heating, cooling, ventilation, hot water, and building envelope. Under a special rule, architects, engineers, contractors, environmental consultants, and energy services providers may also be eligible for the incentive on public projects. On a public project, only a "designer" can claim the incentive, as defined by the allocation rule. The designer is a person who creates the technical specifications for installation of energy-efficient commercial building property or partially qualifying commercial building property under §179D. This presentation will provide an overview of the §179D Deduction and the allocation rule, as well as discuss the recent court case that denied a taxpayer the incentive for failing to demonstrate their role as a designer. It will also cover the IRS Chief Counsel Memorandum 2018-005 for further clarification. The presentation will emphasize the importance of hiring a qualified and experienced team, including CPAs, attorneys, and professional engineers, to properly analyze the complex tax rules and engineering requirements for the §179D Deduction. Attendees will gain a better understanding of the §179D Deduction and the allocation rule, as well as learn how to effectively claim the incentive for their building design projects.

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Kreig Mitchell JD LLM
Section 179D for Building Designers
Kreig Mitchell JD LLM
Krieg D. Mitchell is an attorney based in Houston,
Texas. He has extensive experience in the tax field,
having worked as an attorney and appeals officer for
the IRS, as well as in the tax departments of two
Fortune 500 companies, a Big Four accounting firm,
and a tax consulting firm. He has also managed a tax
law firm.
Kreig D. Mitchell
https://mitchelltaxlaw.com
About Section 179D
● Tax deduction for energy-efficient commercial buildings
● Encourages the use of energy-efficient technologies
● Reduces greenhouse gas emissions and energy costs
● Applies to costs incurred for energy-saving systems such as lighting, heating,
and cooling systems
● Based on the cost of energy-efficient property installed in a building
● Deduction amount is the lesser of the cost or the maximum specified in code
Amount of the Section 179D Tax Deduction
● The maximum amount of the deduction is based on the product of the applicable
dollar value and the square footage of the building, less the aggregate amount of
deductions for the previous three taxable years
● The applicable dollar value ranges from $0.50 to $1.00, depending on the
percentage of annual energy and power cost reduction achieved by the property.
● Property that satisfies certain requirements can qualify for an increased deduction
amount of up to $2.50
● The definition of energy-efficient commercial building property and the methods for
calculating and verifying energy and power consumption and cost are provided in
the regulations
● Special rules are also included, such as prevailing wage and apprenticeship
requirements
The Section 179D Allocation
● Tax-exempt entities typically do not benefit from the deduction
● Congress extended the benefit to tax-exempt entities by allowing allocation to
designers
● Designer may include an architect, engineer, contractor, environmental
consultant, or energy services provider
● Allocation must be in writing and contain certain information and signatures
● Designer must obtain allocation before claiming the deduction
● Maximum amount of the deduction is the cost incurred by the owner to place
the energy-efficient property in service
● Designer does not include the allocated amount as income
United States v. Quebe, 123 AFTR 2d 2019-XXXX, (D. OH 2019)
The taxpayer was involved in selecting light fixtures that met the requirements of
the plan they were given and installed the lighting fixtures. The IRS argued that
the architects and engineers who designed the buildings were primarily
responsible for the design of the lighting systems, not the company that installed
the fixtures. The court agreed with the IRS’s position.

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Section 179D for Building Designers.pdf

  • 1. Kreig Mitchell JD LLM Section 179D for Building Designers
  • 2. Kreig Mitchell JD LLM Krieg D. Mitchell is an attorney based in Houston, Texas. He has extensive experience in the tax field, having worked as an attorney and appeals officer for the IRS, as well as in the tax departments of two Fortune 500 companies, a Big Four accounting firm, and a tax consulting firm. He has also managed a tax law firm. Kreig D. Mitchell https://mitchelltaxlaw.com
  • 3. About Section 179D ● Tax deduction for energy-efficient commercial buildings ● Encourages the use of energy-efficient technologies ● Reduces greenhouse gas emissions and energy costs ● Applies to costs incurred for energy-saving systems such as lighting, heating, and cooling systems ● Based on the cost of energy-efficient property installed in a building ● Deduction amount is the lesser of the cost or the maximum specified in code
  • 4. Amount of the Section 179D Tax Deduction ● The maximum amount of the deduction is based on the product of the applicable dollar value and the square footage of the building, less the aggregate amount of deductions for the previous three taxable years ● The applicable dollar value ranges from $0.50 to $1.00, depending on the percentage of annual energy and power cost reduction achieved by the property. ● Property that satisfies certain requirements can qualify for an increased deduction amount of up to $2.50 ● The definition of energy-efficient commercial building property and the methods for calculating and verifying energy and power consumption and cost are provided in the regulations ● Special rules are also included, such as prevailing wage and apprenticeship requirements
  • 5. The Section 179D Allocation ● Tax-exempt entities typically do not benefit from the deduction ● Congress extended the benefit to tax-exempt entities by allowing allocation to designers ● Designer may include an architect, engineer, contractor, environmental consultant, or energy services provider ● Allocation must be in writing and contain certain information and signatures ● Designer must obtain allocation before claiming the deduction ● Maximum amount of the deduction is the cost incurred by the owner to place the energy-efficient property in service ● Designer does not include the allocated amount as income
  • 6. United States v. Quebe, 123 AFTR 2d 2019-XXXX, (D. OH 2019) The taxpayer was involved in selecting light fixtures that met the requirements of the plan they were given and installed the lighting fixtures. The IRS argued that the architects and engineers who designed the buildings were primarily responsible for the design of the lighting systems, not the company that installed the fixtures. The court agreed with the IRS’s position.
  • 7. Johnson v. Commissioner, 160 T.C. No. 2 (2023) The Sec. 179D tax deduction is available in the year that the building is in the state of readiness for its intended purpose but, when the tax deduction is taken by the primary designer rather than the owner, the deduction is limited to the equipment the designer installed. The designer cannot take a deduction for the work that other parties who assisted in the design installed.