Architects have been inspired to reduce their carbon footprint for years by designing more energy– efficient commercial buildings. While they work through various objectives on projects, many architects are unaware of how their designs can qualify for tax savings through the 179D Tax Deduction. This incentive allows architects to claim tax deductions of up to $5 per square-foot for designs that follow specific energy–saving measures.

History of 179D

First introduced through the Energy Policy Act of 2005, the program encourages building owners and designers of tax–exempt buildings to reduce energy consumption by incentivizing more energy–efficient buildings. By following this policy, architects can be rewarded with tax savings for their work on newly constructed buildings and renovation projects. Because of the impact of this policy, the 179D Tax Deduction permanently became part of the U.S. tax code in 2020, later expanding benefits beyond private and government–owned buildings.

Qualifying Buildings

To be eligible for the deduction, qualifying work must have occurred after December 31, 2005, and the energy–efficient improvements must have been completed in an amendable tax year. With the Inflation Reduction Act, 179D became more incentivizing for architects in many ways:

1. In 2022, the deduction increased from $1.88 per square-foot to $5, meaning a 250,000- square-foot building went from $470,000 in tax deductions to $1,250,000.

2. Previously, 179D could only be claimed once for the life of the building. Now, architects can receive allocations for the same building every four years for qualifying work.

3. Through 2022, only government buildings could allocate this deduction to architects or other designers. Tax-exempt entities can now allocate to architects for projects completed in or after 2023. This includes projects designed for:

- Charitable Organizations - Churches and Religious Organizations
- Private Schools and Universities
- Private Foundations
- Political Organizations
- Other Nonprofits
- Native American Tribal Governments
- Alaska Native Corporations

Ideal Candidates

Architects that have designed or are designing new or renovated tax–exempt or commercial buildings by upgrading the building’s HVAC, interior lighting, or building envelope and insulation systems. Architects often have multiple projects that can qualify each year.

Work With a Trusted Provider

Architects working on new–construction building designs or renovation projects should seek a 179D provider to determine if they can benefit from the incentive. Claiming 179D requires a third party to perform and certify the study, so it’s essential to use a trusted provider with a reputation that stands by its results. Trusted across the nation by tax professionals and businesses, KBKG helps clients determine how to claim the 179D Tax Deduction.

About the Author

Jesse Stanley, P.E. is a director and practice leader of KBKG’s 179D Tax Deduction Group. In addition to helping architects and engineers claim the 179D Tax Deduction, he also serves as a nationally recognized speaker providing AIA accredited CE courses. If you have questions about 179D or KBKG’s other solutions, like the Research & Development Tax Credit or Employee Retention Credit, contact us today.