Design a public school, a courthouse, a university building, or a nonprofit’s facility, and you may be entitled to the 179D deduction for it, even though you never owned the building. It’s one of the most overlooked opportunities in the code for design firms.
See If Your Projects QualifyGovernment and tax-exempt building owners don’t pay federal income tax, so a deduction is worthless to them. The code solves that by letting them allocate the 179D deduction to the primary designer, the architect, engineer, or design-build contractor who created the technical specifications for the energy-efficient systems. You take the deduction on your own return, for work you were already paid to do.
The Inflation Reduction Act expanded allocation well beyond government buildings.
Firms that designed the building and its efficient systems.
Mechanical, electrical, and energy engineers on the project.
Contractors who created the technical specifications.
More than one designer can qualify on a single project, and the owner allocates among them. An allocation letter from the building owner is required to claim.
Most design firms have never claimed 179D on a single project, which means a backlog of qualifying public and tax-exempt buildings sitting in open tax years. Designers generally claim in the year the building was placed in service, and open years can often be reached by amendment. For a firm with a steady public-sector practice, that backlog can be substantial, if the projects began in time to beat the sunset.
That’s the point of the allocation: government and tax-exempt owners can’t use the deduction, so they assign it to the designer who specified the efficient systems.
An allocation letter identifying your firm as a designer and assigning the deduction. We help secure and document it as part of the study.
Often, yes, designers generally claim in the placed-in-service year, and open years can be amended, subject to the sunset’s construction-start cutoff and the amendment window.
No. Unlike owners, designers don’t own the building, so there’s no basis reduction, it’s a deduction against your firm’s income.
This page is general information, not tax or legal advice. Section 179D eligibility, amounts, certification, and deadlines depend on the project’s facts and current law, and are determined through the required energy study and certification in coordination with your tax advisor. Novaric does not guarantee deduction amounts or any tax outcome.