New Tax Incentives for Security and Fire Protection Systems.

The Tax Cuts and Jobs Act (P.L. 115-97)

This Act was signed on December 22nd, 2017. It includes two important changes to the U.S tax code providing more incentives for businesses to invest in new commercial fire alarm and security protection systems. The broader effort of these laws is to produce long term economic growth by encouraging businesses to make big capital investments.

Normally, the costs of commercial-use security and fire alarm systems are capitalized and depreciated over a recovery period between 5 and 20 years depending on many factors such as size of system, integration of system with building structure, and the relationship with business and property.

As of 2018, these new tax laws allow most businesses to write off the full cost of such systems as an expense for the tax year they were placed in service, eliminating the full capitalization requirement.

SECTION 179 EXPENSING

In years past, small and medium size businesses could deduct most business replaced equipment places in service during a year up to $500,000 not exceeding taxable income. But now, for the first time permanently, security systems and fire alarm protection systems are treated as qualifying Section 179 property under the federal law even though they can still be considered building improvements. See 26 U.S Code 179. Businesses can deduct up to $1 million in these purchases that quality for Section 179. The deduction phases out on a dollar-for dollar basis after a business has $2.5 million in total qualifying purchases, reaching zero at $3.5 million. After 2018 the increased limit and phaseout threshold are indexed to inflation.

Now in 2018, qualifying businesses can deduct the cost of new security and fire alarm protection systems up to $1 million under section 179.

 

Now qualified:

Vermont Life Safety is certified for repairing, inspecting and installing fire alarm and security systems including sensing devices, computer modules, sprinkler heads and piping, sprinkler pumps, visual and audible alarms, alarm control panels, heat and smoke detection devices, kitchen suppression systems, emergency lighting, and fire extinguishers.

Security systems for the protection of the building and occupants can include window and door locks, cameras, recorders monitors, motion detectors, alarm monitoring systems, access control systems, and even associated wire and conduit.

“BONUS” DEPRECIATION

Bonus Depreciation Available by Year

  • 2018: 100%

  • 2019: 100%

  • 2020: 100%

  • 2021: 100%

  • 2022: 100%

  • 2023: 80%

  • 2024: 60%

  • 2025: 40%

  • 2026: 20%

Certain security and life-safety products may qualify for bonus depreciation based on the length of the applicable recovery period, which tends to be less when use is related directly to the primary commercial activity of a business.

WHY DOES THIS MATTER?

  • After-tax system cost is reduced by offsetting it with the tax savings generated.

  • Accelerated depreciation provides additional cash flow by freeing up money today that could be used for another purpose important to the business.As such systems are typically large expenditures; being able to recover these costs more quickly helps growing businesses expand their capital assets.

  • Claiming Section 179 deduction is a voluntary election, while bonus depreciation can be declined but requires a taxpayer to follow opt-out procedures.

  • When replacing an old system, any remaining depreciation can be deducted in the tax year it is replaced (subject to fixed asset disposal accounting rules).

Sources cited:

 Brady, and Kevin. “H.R.1 - 115th Congress (2017-2018): An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018.” Congress.gov, 22 Dec. 2017, www.congress.gov/bill/115th-congress/house-bill/1.