The Personal Benefits of 179D
CONSULTANTS AND CONTRACTORS CAN BENEFIT PERSONALLY
WHILE HELPING THEIR NON-TAXED CLIENTS
n Go back to non-taxed clients that did
qualifying projects in 2017.
n Let them know that although they can’t
get the tax break, you can, and you can
pass on a portion to them (you could split
the cash value 50% if you like).
n Account for extra work or time to pay your
accountant to process the paperwork.
This process gets very exciting if you have
multiple non-taxed entities because the tax
deductions to you can really add up. If you’re
able to achieve enough tax breaks where
your taxable income goes to zero, then you
don’t have to pay taxes for that year.
Maximize with Your IRA
You can go further for even greater tax
benefits, and the impact can be huge. (This
idea can work anytime you have a year
where your taxable income is less than zero.)
If you have enough pass-through tax
deductions, it’s possible that you could actually have a negative taxable income. If that’s
the case, then to offset the losses (which are
just on paper) you could convert some of
your tax-deferred IRA funds into Roth IRA
accounts. This conversion would normally
show up as income, but if you have a tax-deduction, it would cancel out and you still
would owe zero taxes, while moving money
into a post-tax account. So, the bottom line
is that you move money into the “safe zone”
(tax free, not tax deferred) of a Roth.
The math works on any fraction of the
numbers below or multiplication:
n Suppose you have a government or non-
tax paying client that upgraded lights,
building envelope and HVAC within a
1,000,000 square-foot building.
n The special energy efficiency deduction
could be $1.8 million.
n This is worth about $600,000 at a 33%
n Split 50% of the cash value and your client
Sounds crazy, right? Yet, I would borrow
the money if I had to, because your payoff
is roughly twice that amount. When tax
time comes, you get to write off $1.8 million,
which means the first $1.8 million of taxable
income is now tax-free to you. If you were
in the top tax bracket, that is worth about
$600,000 in taxes you don’t have to pay.
If you didn't profit $1.8 million last year,
move money from your IRA to Roth IRA until
your taxable income is zero:
n Assume you made $1 million in taxable
income last year and you get the $1.8 mil-
lion tax deduction.
n You then have $800,000 worth of unused
deduction, so you covert $800,000 of
IRA funds into a Roth IRA account and
your taxes are still zero, while protecting
$800,000 from future taxes.
n Note that you could convert $825,000 to
Roth because the extra $25,000 would
put you at a taxable income that’s less
than the first taxable bracket.
Unlike a tax-deferred plan, Roth account
funds won’t tax the growth of the account.
Any consultant, architect or contractor can
do this. Make sure the energy efficiency
projects happened and meet the qualifying
criteria, then add up the square feet.
While we don’t know yet if 2018 projects
will qualify for the 179D deduction, it has
been enabled in 2015, 2016 and 2017, so one
could guess that it might happen in 2018 too.
Eric Woodroof is the Chairman of the Energy
Management Professional Council and a
member of two Halls of Fame.
Expanding on the 179D commercial energy efficiency tax deduction available to commercial businesses within the U.S., personal tax benefits are available when dealing with a non-taxable entity. In other words, consultants
and contractors can benefit personally while
helping their non-taxed clients.
As I have written before, even if you have
to file an extension, it may be worth it to
receive these special tax deductions.
However, consider this information as
opinion. Consult an accountant for specific
Claim Your 179D
The special energy efficiency tax deduction, 179D, has been extended to tax-paying
businesses for 2017. However, if a non-taxed
entity, e.g. non-profit organization, government, etc., did qualifying energy efficiency
upgrades, then the consultant, contractor or
architect can fill in a form and claim the 179D
deduction on behalf of the non-taxed entity.
There are some rules to follow, but if a
consultant/contractor/architect was involved
in a project, the non-taxable entity can
assign the tax benefits to the consultant. The
consultant can choose to pass on a portion
of the savings to the non-taxed entity as a
benefit in the form of a discounted price,
rebate, extra work/scope or other offers.
The bottom line is that the nonprofit entity
gets to receive some of the tax benefits,
which otherwise would have gone unclaimed.
Consultants or contractors should:
ARE YOU ELIGIBLE for the 179D energy
efficiency tax deduction from a project for
a non-taxable facility?