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IRC Section 199 Domestic Production Activities Deductions (DPAD) represents a valuable tax incentive for businesses that perform domestic architecture, engineering, and construction services. Eligible engineering and architecture services include consultation, investigation, evaluation, planning, design and supervision of construction. Construction activities must be domestic and can include residential or commercial building improvements as well as infrastructure projects. Generally, the tax deduction can be as much as 9% of taxable income.
Architecture Firm Case Study
|Item||Average Annual Amount|
|Qualified Research Expenses (QREs)||$750,000|
|Net Federal Credits||$45,500|
|Net State Credits||$25,000|
|Total Net Federal and State Credits||$70,500|
Examples of Qualified Activities
Many owners, officers, and CPAs of architecture firms are unaware that they are eligible for valuable federal and state Research & Development (R&D) Tax Credits. However, due to the expansive definition of R&D for tax credit purposes, many of the building and building sub-system design and detailing activities performed by architecture firms during the Schematic Design, Design Development, and Construction Documentation phases often qualify for such treatment.
The 179D Energy Efficient Commercial Building Deduction provides a tax incentive of up to $1.80 per square foot of commercial buildings. The deduction applies to the design and installation of energy efficient systems, such as HVAC, Lighting, and Envelope systems. The 179D is available to building owners as well as the designers and builders of government owned buildings.