The 2020 Coronavirus Aid, Relief, and Economic Security Act, or “CARES Act,” contains a number of tax savings for businesses. This includes a change to the tax code to ensure “qualified improvement property” (QIP) investments can benefit from an accelerated tax deduction for the full cost, including the installation of such property. Under Section 168 of the tax code, the cost of electronic security, fire protection, and alarm systems (among other items which are considered QIP) can be fully deducted for tax purposes. Section 168 can benefit customers that had previously reached limits within Section 179 (Tax Cuts and Jobs Act 2017). Below are lists of items considered QIP:
FIRE PROTECTION & ALARM SYSTEMS
Fire-protection and alarm systems, including sensing devices, computer controls, sprinkler heads, sprinkler mains, associated piping or plumbing, pumps, visual and audible alarms, alarm control panels, heat and smoke detection devices, fire escapes, fire doors, emergency exit lighting and signage, and fire-fighting equipment, such as extinguishers and hoses.
BUILDING SECURITY SYSTEMS
Security systems for the protection of the building and its occupants, including window and door locks, security cameras, recorders, monitors, motion detectors, security lighting, alarm systems, entry and access control systems, related junction boxes, associated wiring, and conduit.
SECTION 168 BENEFITS
Tax deduction for the full amount of equipment and labor costs that are considered improvements to the interior of a nonresidential or commercial building
No limitation on the cost of equipment that can be purchased
Leased or purchased equipment qualifies, including Convergint installation labor
Deductions for purchases reduces the after-tax costs to U.S. companies
Costs incurred back to January 1, 2018 will be retroactive
HOW IT WORKS (Example)
A business owner installs new fire and security products with equipment and installation cost of $2,000,000. Under previous depreciation rules, the business owner would claim approximately $51,282 in depreciation deductions annually over 39 years for a year one net equipment cost of $1,989,230.
Under the new law, the owner now may deduct the full equipment and installation cost of $2,000,000 from their business income the year of purchase and installation. At the business tax rate of 21%, this saves the business owner $420,000 in taxes, effectively lowering the cost of the equipment.
|Impact of Section 168 Deduction||Without Sec. 168||With Sec. 168|
|Total cost (equipment and install)||$2,000,000||$2,000,000|
|Corporate tax rate||21%||21%|
|Cash savings (deduction x tax rate)||$10,769||$420,000|
|Net equipment cost||$1,989,230||$1,580,000|
*Consult your tax professional for specific business advice.