National Association of Government Contractors

Deduction for Contractors with Commercial Buildings

Contractors, and business owners looking for ways to reduce costs associated with commercial-building ownership, should examine potential tax reductions including the  §179D tax deduction, while they are still available.

The §179D deduction, which rewards energy efficiency measures in commercial buildings, is a tax incentive available to building owners and primary designers since its' inception under the Energy Policy Act ("EPAct") of 2005.

This popular deduction expired on December 31, 2016, while Congress is still considering options for its renewal, a limited amount of time remains to claim §179D for past projects through the look-back period.

Commercial building owners that have installed energy efficiencies should consult with a tax professional immediately. Section 179D offers a deduction of up to $1.80 per square foot when qualifying improvements are made to lighting systems, the building envelope, or HVAC systems.

In addition to §179D, the tax code allows commercial building owners other means to reduce their tax burden.

Cost segregation allows taxpayers to change the classification of certain real property assets to personal property, creating more substantial and immediate depreciation deductions.

Examples of real property items that could be considered personal property include: certain types of electrical wiring, carpeting, and wall coverings.

Also, the tax code's tangible property regulations apply to all taxpayers that have acquired, produced, or improved tangible property, such as buildings or equipment. The regulations allow taxpayers to expense items that were capitalized as improvements in previous years—enabling them to claim additional deductions and losses.

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