Credit: Mike Morgan
If your 2009 portfolio included a government project eligible for the 179D deduction, says the Reznick Group's Lorraine Reale, it's not too late to apply it to your tax return. "Amended returns can be costly" she notes "but you might be in that sweet spot where you want to bulk up your deductions."
The Energy Policy Act of 2005 added section 179D—which allows a tax deduction for the cost of building energy-efficient commercial property—to the Internal Revenue Code. Originally scheduled to sunset at the end of 2009, 179D was extended through 2013 two years ago. Who can claim the deduction? How does it work? Architect learned the basics from Lorraine Reale, a certified public accountant and a Reznick Group principal in the company’s Bethesda, Md., office. Reale, who is also a member of the National Association of Real Estate Investment Trusts and the treasurer for both Commercial Real Estate Women and Professional Women in Construction, has focused on commercial real estate throughout her entire career.
How did you get interested in taxes?
I took some classes in college, and one day the clouds parted, the light shone down, and I said, “I get it!” This stuff is fun for me. I like solving puzzles. I like helping people figure out the legalese, how to compromise and make a transaction work.
What’s your interest in 179D?
It’s irrational, but I love certain code sections, and this is one of them. It provides such a benefit for architects and engineers.
What is the benefit?
Depending on the square footage of the building you’ve designed, there is a maximum of a $1.80 per square foot deduction available if there is certification that what has been crafted has reduced the annual energy and power costs by at least 50 percent.
How is the benefit determined?
You need to have the plans looked at by a certified professional—an engineer. They need to run it through the software and provide you with a report. You take the square footage and multiply the applicable dollar amount, and that’s your deduction.
How does 179D relate to LEED certification?
They should go hand in hand. When you’re doing LEED certification and you have designated certain improvements as being energy efficient, those are the same standards that would qualify for 179D. But you might not be going for LEED certification, and you might be doing something where this would apply.
Who can take the deduction?
It’s owned by the owner of building, and they have the right to allocate it to someone else. You can make the deduction part of your negotiations when you’re executing a contract for a commercial deal. Bringing it up should have some value that they’d be willing to split with you.
When you’re dealing with a governmental agency, you have a better bargaining position. [Because it doesn’t pay taxes,] a government agency—local, state, federal—is not worried about deductions. They are probably going to be favorably inclined to provide that deduction to the architect, the engineer, the contractor, or the environmental consultant.
Why is it worth the effort?
If it’s a 250,000-square-foot building, it’s a potential deduction of about $450,000. It’s serious money.
What about energy-efficient projects that are already completed?
If you worked on a government building in 2009, didn’t do this, and realize it now, you can go back to the governmental agency and have them sign the documentation. You can amend your tax return and get back money—assuming you made money in 2009.
So an architect could find that some additional paperwork and accounting could be lucrative during these recessionary times?
If you’re in a fallow period, it’s the perfect project that would benefit you.
How can knowing about 179D be marketable?
It’s not something you’re going to advertise on your website, but it’s great to have in your back pocket. When you walk in with a commercial developer, you can bring it to the discussion as something where you’re looking out for them as well as yourself.