The Clock Is Ticking on CARES Act Tax Incentives
The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress and signed into law March 27th, 2020 included over $2 trillion in economic relief to help offset the impacts of COVID-19. It also included tax savings for businesses, including options for commercial and industrial facilities to take advantage of Qualified Improvement Property (QIP) investments under section 168 of the Act. According to accounting firm KBKG, Qualified Improvement Property (QIP) is defined as any improvement made by the taxpayer to an interior portion of a building that is nonresidential real property as long as that improvement is placed in service after the building was first placed in service by any taxpayer (Section 168(k)(3)).” For full details, download the PDF from the IRS.
Under this new revised definition, facilities have incentive to address improvements, upgrades or retrofits to fire and life safety systems, even though residential and projects such as new additions or expansions, elevators or the structural framework of the building are excluded. According to National Fire Sprinkler Association (NFSA) who lobbied aggressively for Section 168, “The CARES (Coronavirus Aid, Relief, and Economic Security) Act corrects a drafting error that stopped larger businesses, which typically incur the highest sprinkler system costs, from enjoying the 2017 Tax Cuts and Jobs Act’s (TCJA) unprecedented fire protection savings.”
This means there is significant incentive for facility owners to expedite projects such as sprinkler retrofitting under the CARES Act, or retroactively take advantage of projects after 2017 when the TCJA was passed. Qualified Improvement Property (QIP) is now classified as a 15-year property under the TCJA, making it eligible for 100% bonus depreciation through 2022.
So, what does all of this mean? We strongly advise to speak with a tax professional regarding your specific situation, but in layman’s terms a facility owner would have the ability to receive a depreciation tax deduction of the percentage of the total project cost over a period of years. Under the new rules, and for approved projects and facility types during the allotted time, a facility may recognize 100% of that depreciation credit immediately.
In short, fire and life safety service providers and some of their customers have a window of opportunity to capitalize on tax advantages for projects like sprinkler retrofitting. The winners will be those service providers who are able to effectively educate their customers on the tax break, especially in markets where legislative sprinkler mandates have been gaining traction recently. Those who fail to act will miss out on lucrative projects.
- CARES ACT Update: IRS Details How to Benefit the Fix to the Retail Glitch, National Law Review
- IRS releases Rev. Proc. 2020-25, guidance for adjustments to Qualified Improvement Property (QIP) depreciation, CohnReznick LLP
- The CARES Act Delivers New Fire Sprinkler Tax Incentives, National Fire Protection Association