PRSM retailers and suppliers should take advantage of a recently passed tax law that could save thousands of dollars on HVAC or security system improvements. For example, under the new law, a retailer in the 35 percent tax bracket spending $150,000 on new rooftop HVAC units could potentially save $52,000.
The 2018 Tax Cuts and Jobs act expanded section 179 property to include improvements made to nonresidential real property for heating, ventilation, and air-conditioning property, fire protection and alarm and security systems.
To qualify as section 179 property, the improvements must be made to nonresidential real property and must be placed in service after the date such nonresidential real property was first placed into service.
Beginning in 2018, a building owner may be able to immediately deduct up to $1 million of all its section 179 property, including improvements made to nonresidential real property, e.g., HVAC property and mechanical systems, placed in service in a given tax year. The deduction phases out dollar-for-dollar if the building owner places more than $2.5 million of property in service.
Alternatively, building owners may be able to immediately deduct all improvements made to nonresidential real property for HVAC property and mechanical systems after September 27, 2017, referred to as “100 percent expensing” under section 168.
The 100 percent expensing is not subject to the limitations placed on section 179 property and is available to building owners regardless of the dollar amount of property placed in service in a given tax year. Note that 100 percent expensing begins to phase-out after December 31, 2022 and completely sunsets after 2026.