Infrastructure Projects - How to Maximize Tax Savings

[Julio Gonzalez]

The development of new infrastructure is crucial in shaping our communities and powering our economy. Infrastructure can include things such as bridges, roads, utilities, ports, etc. and are what help people connect while also allowing our economy to progress and prosper. Unfortunately, these projects often come with a high cost once you take into consideration their scale and complexity.

Thankfully, state and federal governments have created a large number of tax benefits and incentives to help companies offset the expenses of these infrastructure projects. With tax efficient planning, companies are able to make their infrastructure budget go further to complete projects that improve our lives and the places we work and live.

Taxes can oftentimes be a big challenge for major infrastructure projects as being able to understand the federal, state and local tax codes can be incredibly challenging. That being said, if companies are able to utilize the tax codes to their advantage, the tax savings can create millions of dollars to go back into the project’s budget. Here are some of the most common tax pitfalls that we see:

• Missed Credits: The tax code is very complex and has a lot of deadlines and limitations. However, there are many federal, state and local incentives for infrastructure investments.
• Asset Classification: Different infrastructure asset classes have specific tax treatments (such as power lines or pipe lines). If the asset is incorrectly classified, this mistake could cause an overpayment in taxes.
• Compliance Issues: If you fail to meet certain compliance requirements such as permitting, licensing or regulatory requirements, this could trigger large tax penalties.

Federally, two examples of tax savings for building infrastructure include:

• Renewable energy credits: Those who design commercial buildings with energy efficient items may be able to utilize the 179D deduction which can result in significant deductions.
• Energy efficiency deductions: If you install qualified renewable energy such as solar, geothermal or wind systems, you could get a credit for up to 30% of the cost by utilizing the Investment Tax Credit (ITC).

As I said before, smart planning is the key to efficient tax savings to put more back into your project’s budget. Here are some key strategies:

• Segregate Costs: Cost segregation allows you to reclassify assets to accelerate depreciation deductions.
• Plan it out early: Work with tax advisors early on in the process to identify opportunities and integrate tax planning into the full project.
• Ensure compliance: Many of the incentive programs have strict compliance. Meticulous documentation and compliance helps avoid messy audits and penalties later on.

Want to learn more? Here are some additional articles on the things discussed above.

Cost Segregation FAQs

Commercial Buildings and the Need for Energy-Efficient HVAC Systems

Financial Incentives for Building Eco-Friendly Properties

If you still have further questions, feel free to reach out!