New Tax Incentive Likely to Benefit Contractors

Construction and renovation contractors are eligible for a new 3% domestic production tax incentive on qualifying projects, according to recently issued guidelines from the Internal Revenue Service (IRS). The tax incentive increases to 6% in 2006, and 9% in 2010.

The new guidelines incorporate the provisions of the American Jobs Creation Act, which was enacted late last year. Details of the IRS Notice that includes the interim guidelines will be published in the Internal Revenue Bulletin 2005-7, dated Feb. 14, 2005.

In the construction field, the deduction provides a tax savings on profits on construction or substantial renovation of real property, including residential and commercial building, and infrastructure, such as road, power lines, water systems and communications facilities. The IRS guidelines describe that substantial renovation is based on whether such ". . . activities result in permanent improvements or betterments of property, such that the cost of the activities must be capitalized . . . and must materially increase the value of the property, substantially prolong the useful life of the property, or adapt the property to a new or different use."

"Plumbing and HVACR contractors who are aware of this new tax incentive can look forward to significant tax savings on eligible construction and renovation jobs," says Lake Coulson, vice president of government relations for the Plumbing-Heating-Cooling Contractors-National Association (PHCC). “We encourage everyone to consult with their accountants soon to begin considering what projects may qualify in 2005.”

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