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.
Many owners, officers, and CPAs of construction, general contracting, and specialty sub-contracting 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 pre-construction planning, value engineering, and other activities performed by construction, general contracting, and specialty sub- contracting often qualify for such treatment.
Examples of Qualified Activities
The federal government and most states have enacted fuel tax breaks for transportation and other fuel consuming companies for various uses of gasoline, diesel, and other common fuels. For federal purposes, taxpayers may be eligible for refunds of tax paid on gallons of certain fuels used in vehicles and equipment off-road, such as in farm equipment, compressors, generators, and bulldozers. Many states offer a wider range of refund opportunities than the federal government, extending exemptions to vehicles licensed for on-road use, such as cement mixers and garbage trucks.
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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.
Construction Firm Case Study
|Item||Average Annual Amount|
|Qualified Research Expenses (QREs)||$600,000|
|Net Federal Credits||$52,000|
|Net State Credits||$25,000|
|Total Net Federal and State Credits||$77,000|