New Fire Alarm and Sprinkler Tax Incentives Benefit Businesses
If you’re considering retrofitting or updating your commercial fire alarm and sprinkler systems, now is the time. The new federal CARES Act follows up on significant tax incentives given to companies in 2017, correcting a loophole in these rules. Today, big and small companies can recover the upfront costs of a fire alarm and sprinkler system for their commercial properties.
What happened to the Tax Cuts and Jobs Act?
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Although the bill was primarily designed to stimulate the economy, there were, as there always are, a few caveats nestled in the legislation. One such caveat corrected a language error found in the 2017 Tax Cuts and Jobs Act (TCJA) which created an unexpected legal loophole that stopped companies from maximizing a write-off on fire sprinkler upgrades.
The TCJA was primarily tax reform legislation designed to encourage businesses to invest in their infrastructure and make capital investments. The National Fire Sprinkler Association (NFSA) worked hard to insert a tax write-off that was designed to offer small companies an incentive to invest in property protection systems. This followed on the heels of new ordinances introduced by a number of communities following fatal fires, requiring high-rise buildings and other commercial structures to retrofit or update their sprinkler systems. Older buildings with high occupancy, low lighting, and late-night operations have been particularly fire-prone, further highlighting the need to transform safety code regulations to keep everyone safer.
The TCJA was intended to provide sweeping tax reform for U.S. businesses. This included allowing businesses to write off the full cost of a commercial fire sprinkler retrofit or new installation. However, to receive the full benefit, companies could only spend the $2.59 million annual maximum on this equipment. If the cost of a fire sprinkler system was higher, you couldn’t receive the deduction. The CARES Act corrected the loophole, allowing even the largest businesses to deduct 100% of their multi-million-dollar fire safety investment.
How does the CARES Act increase the tax write-off?
The 2020 CARES Act contains several tax savings, including deducting the cost of electronic alarm, fire protection, and security systems. The best part, the CARES Act is retroactive to 2017. If you retrofitted or upgraded your fire alarm and sprinkler system in 2017 or after, you should consult with your tax advisor or accountant for important tax incentives and benefits. If not, there’s still time!
The CARES Act provides a tax deduction for the full amount of equipment and labor costs associated with upgrading these important safety systems for commercial buildings. There are no limitations on the costs, which closed the TCJA loophole. Further, both purchased or leased equipment are included in the tax write-off. The systems that qualify under the new rules include:
Alarm systems and fire protection. This includes sensors, computer controls, sprinkler mains, piping, heads, and pumps. It also covers alarm control panels, smoke and heat detectors, fire doors and escapes, extinguishers and hoses, lighting, and signage.
Security systems to protect the business. This includes door and window locks, cameras, motion detectors, monitors, lighting and alarms, wiring, and more.
Consult with your tax advisor to fully understand how these lucrative write-offs could impact your business.
Why the time is right for fire protection
Even before these incentives, property and facility managers in every industry have long understood the importance of fire alarm and sprinkler systems for the safety of their building occupants. The National Fire Protection Association (NFPA) reports the latest on annual property incidents related to fire:
Assembly properties (nightclubs) experience an average of 15,984 fires with property losses of $333 million annually.
Educational institutions suffer 4,763 fires with losses averaging $64 million annually.
Healthcare, detention, and correction organizations average 6,719 fires per year at a cost of $56 million.
General or mercantile (retail) businesses lose $849 million in 18,972 incidents a year.
The agriculture, defense, industrial, mining, and utility category experience 2,925 fires each year at a cost of more than $230 million.
Manufacturing and processing plants claim $509 million in fire damage from an average of 5,270 recorded incidents.
The loss of life and economic toil from even one commercial property fire could cripple your business for decades. The CARES Act is the right legislation to provide the financial support businesses need to invest in life safety and security systems. Retrofitting your existing business is an economic, strategic, and moral imperative; automatic fire sprinklers reduce death by 81% and property damage by 70%. Given the financial incentives, doing the right thing has never been easier.
Interested in exploring how you can maximize the CARES Act tax benefit for your business? Reach out to our team today!
© 2020, TRL Systems, Inc.