The pandemic has affected us all in a variety of ways. But did you know the COVID-19 relief package from the federal government allows for tax incentives to upgrade or replace older systems? The 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has many different tax-savings opportunities for businesses. According to Section 168 of the CARES Act, Qualified Improvement Property (QIP) investments, such as the cost of fire alarm and security systems, can be fully deducted on taxes in the first year it is in service. Previously, companies had to depreciate their QIP investments over several years, all the way up to 39 years for fire alarm installs.
Section 168 Benefits Include:
- tax deduction on equipment and labor for QIP investments to an existing commercial or non-residential building; new construction does not count
- no caps on equipment costs
- can be applied to purchased -or- leased equipment
- retroactive to costs incurred as far back as January 1, 2018
Example of How It Works:
Let’s say a building owner installs a new fire alarm system that cost $1,000,000. Prior to the CARES Act, about $25,641 in depreciation deductions could be claimed annually over 39 years, bringing the net equipment cost in year one to $994,616 with a 21% business tax rate. Under the new law, the full $1,000,000 QIP investment can be deducted in year one of service. At a business tax rate of 21%, this saves $210,000 in taxes, effectively lowering the cost of the equipment to $790,000.*
If you are ready to make improvements to your existing fire alarm or security system, IPS is here to help. Contact us today to get your next project started!
*Before making any decision, we strongly encourage any business to consult with their accounting and tax professionals. IPS is not a tax or legal service and cannot be held responsible for any financial, legal, or tax decisions made by our customers. To learn more about the CARES Act, please click here.