Examining 179D Deductions through the Eyes of the IRS

If you are looking to take a 179D Deduction as the official designer of a government-owned property or a commercial property owner, take note! Recently, the IRS Large Business and International Division updated its training with guidelines for IRS staff to perform examinations for 179D deductions. While this serves as an aid for IRS staff, it also provides important insights to architects, engineers and contractors.

179D tax deductions took effect in 2006, became permanent with the Consolidated Appropriations Act of 2021, and enable building owners to claim a tax deduction for installing qualifying systems that reduce energy and power costs by 50 percent or more. Qualifying systems include interior lighting, building envelope, heating, cooling, ventilation, or hot water systems.

This year, the deduction can equal up to $1.80 a square foot. If the building is 100,000 square feet, that could mean an $180,000 tax deduction.

Commercial building owners and designers of government-owned buildings are eligible for 179D tax deductions; however, the updated IRS training places more emphasis on what to watch for during government-owned building examinations.

Since government buildings are non-taxable, owners can allocate 179D tax deductions to the designer, namely the person who created the technical specifications for a new building or an energy efficient commercial building property addition. This may include an architect, engineer, contractor, environmental consultant, or energy services provider; it does not include a person who installs, repairs, or maintains a system. However, it is the IRS examination – not the building owner – that determines whether a taxpayer meets the definition of designer.

An allocation letter from a government building owner is not enough to establish a taxpayer as a designer eligible for the deduction. Examiners determine eligibility by reviewing contracts to see who is designated as responsible for design. To establish designer status, a designer must provide the contract along with technical specifications, stamped or sealed drawings, and other documentation.

Government building owners that provide an allocation letter may be interviewed by agents to ensure they have the authority to make the allocation. Also, to claim the deduction, certification by properly licensed individuals is required.

IRS examiners are encouraged to determine the Designer of Record by reviewing stamped or sealed drawings; however, this excludes shop drawings used to ensure a building conforms to an architect’s or engineer’s design requirements. Technical specifications created by the architects and engineers take precedence over shop drawings, increasing the likelihood that

Craig Sickler, CPA, Partner RBT CPAs, LLP

architects and engineers will qualify as designers. While not explicitly addressed, it seems likely that contractors engaged to provide both design and construction services can also meet designer status requirements.

In addition, the IRS training emphasizes tax-exempt and non-profit organizations cannot allocate 179D deductions to designers. For example, a state university that places some buildings under a private foundation cannot allocate 179D deductions.

The examination’s final step focuses on whether penalties for taxpayers are warranted based on adjustments. If an adjustment results in underpayment or an excessive refund or credit, agents will consider accuracy-related penalties (i.e., for negligence or substantial underpayment or an erroneous claim for refund.)

If you need assistance understanding, securing, and certifying 179D deductions, RBT CPAs can help.

(Source: Aberin, CJ. “IRS updates guidance on tax deductions for energy efficient buildings.” AccountingToday, July 15, 2022.)

Plan for tomorrow, live for today.

We get it. You are busy writing bids, securing contracts, managing projects, and dealing with personnel issues all day long. But when do you get to plan for your own financial tomorrow and still live for today?

We’ll help you plan to do the things you live for. Whether you are imagining a retirement sailing around the world or just kicking back with your family, we can tailor a plan from a wide range of financial options to make it happen. Our team of financial planning advisors can help identify your financial planning goals and address those needs with investment strategies for potential growth. With the full suite of Northwestern Mutual resources at our fingertips, we also assist business owners in developing succession and estate plans to protect the continuity of their life’s work and position it to flourish in the future.

See how we plan .

Patrick A Di Cerbo, CLU®, ChFC®, AEP®, MSFS, CFP® Wealth Management Advisor 518.281.8200 patdicerbo.com pat.dicerbo@nm.com

07-1016 © 2021 Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM), (life and disability insurance, annuities, and life insurance with longterm care benefits) and its subsidiaries in Milwaukee, WI. Northwestern Mutual Investment Services, LLC (NMIS) (securities), a subsidiary of NM, broker-dealer, registered investment adviser and member FINRA and SIPC. Patrick A Di Cerbo is an Insurance Agent(s) of NM. Patrick A Di Cerbo, is a Registered Representative(s) of NMIS. Patrick A Di Cerbo, is a Representative of Northwestern Mutual Wealth Management Company®, (NMWMC) (fiduciary and fee-based financial planning services), a subsidiary of NM and federal savings bank. All NMWMC products and services are offered only by properly credentialed Representatives who operate from agency offices of NMWMC. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

A Nice Break

CCA Hosts Annual Golf Outing

Thank you to everyone who joined us for the 2022 CCA Golf Outing and supporting the work we do on behalf of our members. Held Monday, July 25 at the Trump National Golf Club Hudson Valley, it was a wonderful day, and despite early threats of rain the weather was gorgeous.

Golf is renowned for its power to establish new relationships and strengthen current ones, and we couldn’t agree more. Many lasting friendships have been made at CCA Golf Outings, an annual tradition that goes back decades.

We hear everyone had a terrific time, but some had an especially good day: ● First Place Team: Jim McGowan, Jimmy Birardi, Mark Burns, Mike Augustine ● Second Place Team: Mart Stier, Bryan Figurski, Jim Duesel, Jim Orcott ● Third Place Team: Paul Grassi, Paul Crieneri, George Esposito, Eric Bednarczok ● Closest to the Pin, No. 7: Mark Stier (11’8”) ● Closest to the Pin, No. 12: Bill Haskel (37’) ● Longest Drive, Male: Colin Whitaker ● Longest Drive, Female: Katrina Adams

We hope you had as much fun as we did, and plans for the 2023 CCA Golf Outing are already underway. For information about sponsorships and securing your foursome, call the CCA at 845-562-4280 or email Millie Rodriguez at mrodriguez@ccahv.com.

Thank You

A very special thank you to our 2022 CCA Golf Outing sponsors.

Gold Sponsors

Catania, Mahon & Rider, PLLC Laborers Local 235 MDS HVAC-R, Inc. Marshall & Sterling North Atlantic States Regional Council of Carpenters SMACNA Southeastern New York

Silver Sponsors

Armistead Mechanical, Inc. Butler Construction Group, Inc. Darlind Associates, Inc. IUOE Local 137 Ironworkers Local 417 Tectonic Engineering Consultants, Geologists & Land Surveyors D.P.C.

Bronze Sponsors

ABM Air Conditioning & Heating, Inc. Advanced Testing Company, Inc. Barone Construction Group, Inc. Beam Enterprises, Inc. Butler Construction Group, Inc. Holt Construction Corp. Key Construction Services, LLC James McGowan and son Masonry, Inc. Laborers Local 17 Paramount Building Construction, Inc. Penlyn Construction Corp. Perreca Electric Co., Inc. Service Scaffold company, Inc. Tri-State Drywall & Acoustical, Inc. Ulster Savings Bank United Rentals Wallkill Valley Federal Savings and Loan Assoc.

Bar Sponsor

Laborers Local 754

Beverage Cart Sponsors

Advanced Disaster Recovery Beam Enterprises Inc. Ironworkers Local 417 Lovell Safety Management Co. NexGen Protection Services O’Kane Enterprises Patrick DiCerbo-Northwestern Mutual SMW LU#38 Labor Management Welby, Brady & Greenblatt

Cash Sponsor

Marshall & Sterling

Cigar Sponsor

Key Construction Services

Golf Ball Sponsors

Bricklayers Local 5 Hauser Brothers, Inc. Profex, Inc. Beam Enterprises, Inc. Golf Cart Sponsors BNY Mellon Investment Performance Services, LLC. Plumbers & Steamfitters Local 21-HVAC-R TDX Construction Corp.

Hole-in-One Sponsor

Colandrea Buick GMC of Newburgh

Lunch Sponsor

Affinity BST Advisors, LLC

Reception Sponsor

Fabricators, Erectors and Reinforcers Assoc. of the Hudson Valley

Gift Bag Contributors

Catania, Mahon & Rider, PLLC Hauser Brothers, Inc. Lovell Safety Management Co.

Metal Framing Drywall Acoustical Ceilings Doors & Hardware Insulation Specialty Ceilings