Under the 2020 CARES Act, you may be able to write off up to 100% of qualifying facility improvement costs
The CARES Act, the Coronavirus Aid, Relief, and Economic Security Act (Section 168 of the Tax Code), passed by Congress in response to the COVID-19 pandemic includes provisions that provide tax benefits for facility improvements.
CARES Act Eligibility
The CARES Act includes a tax savings measure for non-residential property owners who invest in certain improvements to their property. The tax savings is realized through a bonus depreciation for certain qualified improvements made to the interior portion of a commercial building including:
- Heating and air conditioning equipment upgrades and replacements;
- Interior mechanical and electrical system installations and/or upgrades;
- Other non-structural interior upgrades and replacements including both equipment and installation costs.
Tax Benefits Through Accelerated Depreciation
Prior to the CARES Act, the IRS permitted commercial property owners to depreciate and deduct the equipment and installation costs of such improvements over 39 years (2.5% of the costs each year). Under that depreciation schedule, a property owner could deduct only $2,500 per year for a $100,000.00 investment in a replacement HVAC system.
The CARES Act reduces the depreciation schedule to 15 years without limitation on the size of the project and creates a bonus depreciation that allows the taxpayer to take up to 100% of the deduction in the first year in some specific cases. What’s more, the CARES Act depreciation benefit can be combined with other incentives, such as renewable energy tax credits and utility rebates.
Facilities that may qualify for the full deduction include:
- Hospitals and healthcare facilities
- Office buildings
- Factories and power plants
- Logistics facilities
- Other non-residential properties
An HVAC Case Study
“The costs associated with the installation of an HVAC system may be eligible for accelerated depreciation. Federal tax law allows for accelerated depreciation of certain HVAC costs under Internal Revenue Code Sections 179 and 168. Under Code Section 179, HVAC installations on existing commercial buildings may be eligible for full expensing in the year of installation. Also, under Internal Revenue Code Section 168, components of an HVAC system that are installed on the interior of an existing commercial building may be eligible for bonus depreciation (currently 100%), meaning those costs could be fully depreciated in the first year. Keep in mind that not all taxpayers may be eligible for these benefits, and there are limitations on their applicability, so it is important to discuss this with your tax advisor.” – *Clark Schaefer Hackett/ CPAs & Advisors
For more on the 2020 CARES Act and how it might impact you, visit these sites:
- Changes in Law Could Mean More Cash for Construction and Real Estate Entities
- Ohio Tax Department Changes its Position on the IRC §168(k) and §179 Bonus Depreciation Addback
Now is The Time to Upgrade Your Facility
What this means for you is that right now is an excellent time to consider making non-residential facility upgrades, repairs and improvements.
I.T.S. can help you take advantage of this opportunity by installing a new HVAC system, building automation system (BAS), lighting upgrades, energy savings and other improvements. The bonus depreciation is available for qualifying systems acquired and placed in service before January 1, 2023. Whether the law’s end date will be extended is unknown, so to ensure your new system qualifies, the best time to act is now.
Discover how I.T.S. can help you take advantage of the CARES Act incentive. Call 513-561-2100 to discuss system upgrades, installations, replacements and other facility improvements that may qualify for CARES Act tax benefits.
*Thanks to Brendan J. Walsh, JD, MBA, CCSP, Principal – Clark Schaefer Hackett, CPAs & Advisors Phone: 513-241-3111