Building Designers and the 179D Deduction – Navigating the Allocation Letter Process Successfully

The Energy Efficient Commercial Buildings Deduction under Section 179D is available to owners and designers of new or retrofitted buildings with energy efficient components such as interior lighting, HVAC, hot water systems and the building envelope.

Section 179D not only incentivizes property owners for energy efficiency, but also rewards the design professionals like engineers, architects, and design-build contractors who drive these improvements for owners who are exempt from tax and unable to otherwise take advantage of the deduction. As a result, tax-exempt property owners can “allocate” the available Section 179D deduction to designers responsible for making eligible properties more energy efficient.

Many designers may be unaware that they are eligible for a tax incentive or know the required steps to claim the deduction. Tax consulting firms like CTI can help companies unfamiliar with the allocation letter process understand their eligibility.

What is the allocation letter process? The allocation letter must take a specific form to meet the requirements outlined in IRS Notice 2008-40. Some of the required items include:

• identification of the project and the parties to the allocation;
• details necessary to compute the deduction for the tax year such as the cost of the property and placed in service date;
• the amount of the deduction allocated to the designer(s);
• signatures of authorized representatives of the building owner and the designer(s); and
• an owner declaration.

CTI can help determine a designer’s potential eligibility for the deduction through a complete review of projects to identify which buildings are owned by government entities, non-profits or other tax-exempt entities.

Next, we will identify the tax-exempt owner representatives who will review and execute the allocation letter for the deduction to be claimed by the designer(s). Timely allocation is crucial when multiple designers are involved to secure deduction rights.

CTI connects the dots by explaining the technical requirements of the program, facilitating communication between designers and building owners, and drafting the allocation letter in accordance with IRS requirements.

Once the allocation letter is signed, our engineers and energy modelers get to work. Instead of designers and business owners spending valuable time and effort navigating complicated tax matters, CTI can simplify and manage the process. Our deliverables include a detailed report of the energy savings, calculated according to the prescribed energy standards (ASHRAE 90.1 2007 Edition), as well as all necessary design certifications which are provided to both the designer and the building owner. CTI supports your tax preparer by including all required forms completed and ready for filing.

Time is of the essence and many Section 179D deductions can be substantial, even for just one eligible building! Many businesses let navigating the allocation letter process prevent them from claiming substantial tax savings, but CTI’s team of professionals leads the industry in successful results. CTI’s process is transparent and collaborative to ensure clients have the best opportunity for success.

For more information, please contact Marcus Corral at [email protected].