🚨💰🚨NEW TAX PREFERENCES FOR FIRE SPRINKLERS

There is good news regarding fire sprinkler incentives in the legislation signed into law last Friday. NFSA recently posted a summary of the impact of this legislation on our industry, which their team worked to promote.

The following is a revised summary of the information they shared with the industry and their members:

One of the challenges for state and local governments in mandating fire sprinkler retrofits has been cost and the inability of property owners to recover those costs over a reasonable amount of time. Historically, fire sprinklers in commercial structures have been depreciated over 39 years, the same as plumbing, and 27.5 years in residential settings.

As part of the 2017 Tax Cuts and Jobs Act (TCJA), there are two positive outcomes:

1.) Fire sprinklers were made eligible as a 179 property. This change allowed small businesses to fully expense up to $1.3 million to install fire sprinklers. This allowed any small business, such as a bar, restaurant, or other property, to immediately expense the full cost of a fire sprinkler retrofit. Unlike other tax provisions, Congress made this change permanent and did not sunset.

2.) Fire sprinklers are now eligible as a Qualified Improvement Property (QIP). QIP is essentially any retrofit item on the interior of a nonresidential building, with the exclusion of structural enhancements. This includes fire sprinklers and other interior upgrades such as HVAC, drywall, electrical, and lighting. QIP reduced the depreciation schedule in commercial structures from 39 years to 15 years. In addition, QIP was also eligible for bonus depreciation, which allowed property owners to depreciate the investment in fire sprinklers even more quickly. Congress permitted property owners to depreciate fire sprinkler retrofits 100% for the tax years 2018-2022. Starting in 2023, the schedule decreases to 80% and goes down 20% every tax year until no bonus depreciation in 2027. After that, fire sprinklers would be depreciated over a 15-year time horizon. There is no cap on the amount a property owner can depreciate using QIP and bonus depreciation.

Big Beautiful Bill (BBB):

Congress passed this legislation last week, and President Trump signed it on July 4. Two critical changes in the House and Senate versions of the BBB will significantly benefit the fire sprinkler industry:

1.) They more than doubled the size of the 179 deductions. Small and now medium-sized businesses will be able to fully expense up to $2.5 million instead of the current maximum of $1.3 million. This could allow a property owner to retrofit almost 500,000 sq. ft. of property and fully deduct the cost.

2.) The bill reinstates 100 percent bonus depreciation for QIP properties for the tax years 2025-2030. The bill also reinstates bonus depreciation but does not sunset the provision, so this change is permanent. As before, there is no limit on the amount a property owner can now fully expense.

As always, business owners should consult with a tax professional to better understand the implications and how to best take advantage of these tax incentives.