Section 179 of the 2020 Cares Act
Just what is section 179 of the tax code and what does it mean for HVAC in 2020? Section 179 which was enacted in 2008 is more beneficial to small businesses than ever. Known as the SUV Tax Loophole, it adapted in subsequent years to adjust tax deductions factoring depreciation. Fast forward to March of 2020 and we now have the that that grants cash to business owners through accelerated deductions through the Cares Act. Combined with relief aid for the Corona pandemic business owners can realize even more savings.
What the Cares act does is provide full deductions in a single year instead of having to spread the deductions over several years. It Accomplishes this by corrected a retail glitch in the Tax Cuts and Jobs Act (TCJA). For example, in the past when your business bought qualifying equipment, it typically wrote it off a little at a time through depreciation. So, if your company spent $50,000 on equipment, it gets to write off approx. $10,000 a year for five years. This made the Qualified Improvement Property (QIP) subject to a 39-year depreciation. With the Cares act, QIP changed from 39 down to 15 years and became eligible for bonus depreciation to be taken as well. Furthermore, the Cares Act invalidates the $2 million a year limit that applied to IRC Section 179 property. As an added benefit these changes are retroactive going back to 2018.
So what type of facilities qualify as a QIP
- Office buildings
- Hospitals and other healthcare facilities
- Logistical facilities
- Factories and manufacturing plants
- Other non-residential facilities
What Section 179 means for your business
With the Cares Act, Section 179 provides huge saving can be made when a business invests in new or used equipment. A taxpayer may elect to treat the cost of any section 179 property as an expense which is not chargeable to the capital account. This includes Property applicable include heating, ventilation, and air-conditioning. Under IRS Tax Code Section 179, installing a new HVAC system provides a tax deduction for the project costs. Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year.
Summary
Businesses can now take advantage of both Section 179 and Section 168(k) Bonus Depreciation allowances at the same time. However, the deadline for putting the new equipment into place to qualify for the tax benefit is December 31, 2020. Finally, as each business is unique, consult with your tax attorney or tax preparation team before claiming the tax benefits.