The Coronavirus Aid, Relief and Economic Security (CARES) Act was passed in March with support from both sides of the aisle. With such a comprehensive bill that included stimulus checks to most Americans as well as the Paycheck Protection Program, the opportunities it and other recently passed legislation created might have been overshadowed. Even in the best of times, it is easy to overlook a small detail and cause your business to miss out on tax benefits. Review these strategies to take full advantage of the savings opportunities.
Bonus Depreciation for QIP
When the Tax Cut and Jobs Act was passed in late 2017, a new, comprehensive asset class called qualified improvement property (QIP) was created to simplify and replace the many classifications that previously existed. (QIP typically includes any improvements made by the taxpayer to a nonresidential building’s interior, with the exception of building enlargements, elevators or escalators, and the internal structural framework.) Due to a drafting error, however, Congress failed to assign a 15-year life to the new asset class as they had intended. With no life assigned to this asset class, it defaulted to 39 years—the longest life possible.
Technical corrections within the CARES Act have now resolved this issue, assigning the 15-year life that was intended from the beginning. Not only did this reduce the depreciable life of the qualifying property, it also made this type of property eligible for the 100% additional depreciation allowance (commonly known as bonus depreciation), which allows for the full deduction of property with a life of 20 years or less. As a result, many assets that had been assigned a 39-year life in 2018 and 2019 can now be expensed immediately.
Extension of Energy Efficiency Tax Provisions
A number of energy efficiency tax provisions were extended at the end of 2019 under the Taxpayer Certainty and Disaster Tax Relief Act. As small businesses dealt with the fallout of COVID-19 and tried to understand the ramifications of the CARES Act on their operations, these items could very easily be overlooked.
Developers who complete new multifamily dwellings may qualify for an Energy Efficient Homes Tax Credit (45L) of up to $2,000 per unit. The Taxpayer Certainty and Disaster Tax Relief Act of 2019 retroactively extended this previously-expired incentive for 2018, 2019 and 2020. This credit covers apartments, condominiums, mixed-use developments, production homes, student housing and assisted care facilities. While some projects were initiated with this credit in mind, it might be worthwhile to determine eligibility if your business completed construction of a building in the past few years.
The Section 179D Energy Efficient Building Deduction is available to owners of commercial buildings. New or renovated buildings can qualify for up to a $1.80 per-square-foot deduction if the building is 50% or more efficient as compared to a reference building modeled under ASHRAE 90.1-2007. Three systems are looked at to determine qualification:
- Interior lighting system
- Heating, ventilating and cooling system
- Building envelope system
If the building does not meet the 50% threshold, these systems can qualify separately for a $0.60 per-square-foot deduction if certain conditions are met. This deduction can also be allocated to designers of governmental buildings at the federal, state and municipal levels.
Stay on Top of Tax Guidance
Keeping on top of the latest tax guidance can be a challenge. If you constructed or renovated a building in the last two years, there is a good chance that one of these incentives could apply to your facility. Take advantage of the available savings to improve your cash flow situation and help your business identify opportunities that arise from legislation. At CLA, our team can help you review your specific situation and understand your options. PM
To learn more, email [email protected] or call (309) 495-8707. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CliftonLarsonAllen) to the reader. For more information, visit CLAconnect.com.