The Tax Provisions Every Construction Exec Needs to Know

In case you missed it, a $600 million tax bill went into effect in late 2015 that directly affects the construction industry. As a construction executive, you need to know the details about this act. Beyond the basics, there are two key provisions that will matter most to you. CLC is here to help you break down this information and understand what it means for you.

The Background

The Protecting Americans from Tax Hikes (PATH) Act creates tax incentives designed to benefit U.S. business owners and workers. The goal of this act is to grow the U.S. economy and help taxpayers keep their earnings.

The provisions of the PATH Act are key, preventing immediate tax increases on millions of Americans. And in time, individual Americans and U.S. businesses won’t have to wonder if Congress will extend tax relief policies. This would include: allowing state sales tax deductions, providing small business tax relief; and offering incentives for innovation.

The main pieces relating to the construction industry are the Research & Development Tax Credit and Section 179D (the tax deduction for energy-efficient commercial buildings) provisions.

R&D Tax Credit

Some people misconstrue what the R&D Tax Credit is about. Here’s why it’s confusing: there is more to it than just research. It includes rewarding applied sciences for making processes and products better. Whether it’s now made cheaper, cleaner, greener, quicker or more efficient, these steps are also included in this credit.

While you may have previously overlooked the R&D Tax Credit because you don’t participate in laboratory research, there are benefits for you. It’s the technical problem-solving you do planning and executing on the job site that can take advantage of this credit.

While the R&D Tax Credit has been around for more than 3 decades, the PATH Act makes it permanent. Instead of an uncertainty of knowing whether the credit will be around or not, construction businesses now know that it’s sticking around for good.

Section 179D

Beyond the R&D Tax Credit, construction business owners can take advantage of Section 179D having a 2-year retroactive extension.

As you may know, Section 179D came into existence as part of the Energy Policy Act of 2005. It provides qualifying construction companies up to $1.80-per-square-foot tax deduction for each building the company makes energy efficient.

Qualifying projects includes HVAC, hot water and interior lighting systems and those in the building envelope – the skin of the building.

Things are changing now with the PATH Act. Previously, different kinds of buildings could qualify for 179D, just needing to have energy-savings elements of the building surpass2001 ASHRAE standards. However, the PATH Act moves the baseline to 2007 ASHRAE standards. Buildings placed into service in 2016 are the first to be affected by the change. Although there are different requirements, the 179D extension will still be a great option to reduce a company’s tax liability.

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