Section 199 Deduction

Section 199 Domestic Production Activities Deduction

In 2004, Congress enacted the Domestic Manufacturing Deduction codified in IRC Section 199 as an additional incentive to retain manufacturing and production jobs in the U.S.

Under Section 199, taxpayers are allowed a deduction equal to a percentage of net income from their U.S. production activities in producing new products. The percentage increases in 2010 to a 9% deduction, up from 6% currently (as of 2007-2009).

What Activities Qualify as Manufacturing/Production?

There are a number of activities that can qualify if the taxpayer’s activities are conducted in whole or in significant part in the U.S. and the work is substantial in nature. Among the qualified activities are:

  • Manufacturing, producing, or growing tangible personal property, in whole or in significant part within the U.S.
  • Production of a qualified film (including live TV)
  • Computer software development / production (either off the shelf or downloadable software)
  • Sound recordings
  • Construction of real property* in the U.S.
  • Architectural engineering services** performed in the U.S.
  • Production of electricity, natural gas or potable water produced in the U.S.

*Real Property
Real property construction may consist of residential or commercial buildings, permanent structures, permanent land improvements (i.e., swimming pools, parking lots), oil and gas wells, platforms, and pipelines, and infrastructure (roads, sewers, sidewalks, power lines).

**Engineering Services
Even engineering projects can qualify for the Section 199 deduction including consultation, investigation, evaluation, planning, design, and supervision of construction projects.

Contact us today to learn more about how we can assist in securing you Section 199 Deductions.