Architects & Engineers Articles - Domestic Production Activities Deduction (DPAD) Regulations Finalized

Taxpayers may claim a deduction to offset income from certain construction, architectural, and engineering services.

This deduction, detailed in IRC 199 and Treasury regulations, equals the lesser of two amounts for the tax year:

1. A percentage of the smaller of:
   • The taxpayer’s Qualified Production Activities Income (QPAI) or
   • Taxable income
2. 50% of the employer’s W-2 wages

For contractors, the percentage could be substantial: 3% for tax years beginning in 2005 and 2006, 6% for tax years beginning in 2007-2009, and 9% in later years.

Computation for this deduction, like for most construction projects, has a number of intricacies involved and several unknowns that Treasury has yet to resolve.

This article highlights these areas and discusses other issues that impact the A/E/C industry, including:

• Wage limitations and qualified wages
• Cost allocations
• Pass-through entities
• AMT
• Effective dates and transition rules

Click here to access the full article on DPAD that appeared in a recent issue of the Construction Financial Management Association (CFMA) magazine which details the areas of special interest to the architects/engineers/construction industry.

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