New Tax Deductions for Installing Fire Sprinkler Systems
Good news for residential and commercial owners who want to retrofit their occupancies with fire sprinkler systems. In December, Congress passed the most sweeping tax reform legislation since 1986. Included in this legislation (P.L. 115-97) are two provisions that will greatly incentivize the installation of fire sprinklers.
- Cost Recover Section 13201 – Previously sprinkler systems in commercial structures were depreciated over a 39-year time horizon and residential structures over 27.5 years. Under the new law any sprinkler system installed after September 27, 2017 in either a commercial or residential structure until December 31, 2022 will be able to be fully expensed. Therefore, the property owner will be able to immediately write off the full cost of the sprinkler system. After 2022 the ability to deduct the cost is as follows:
- 2023 80%
- 2024 60%
- 2025 40%
- 2026 20%
- 2027 The depreciation schedule will revert back to 39 and 27.5 years for commercial and residential properties (respectively)
- Small Business Section 179 Expensing – Previously qualified small businesses were allowed to fully expense purchases such as computers, equipment and light duty vehicles up to an annual cap of $500,000. Under the new law Congress has added fire protection as an eligible expenditure under section 179 of the tax code. Congress also increased the cap to $1 million as the amount that a small business can deduct in a single year. This provision applies only to commercial structures and cannot be used for retrofitting sprinklers into residential structures. However, critical occupancies such as entertainment venues could easily be done under this provision. This change is also a permanent law and unlike section 13201 is not gradually phased out over time. For more information, click on the link below.