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A handful of provisions in the 940-page domestic policy law enacted July 4 could spark a quick-turnaround on facility renovations, a tax specialist says.
The law restores 100% bonus depreciation on capital expenditures for property renovations, giving building owners an incentive to undertake work immediately so they can write off the full cost of the project in the year the work is done, says David De Jong, a principal at law firm Stein Sperling.
“It’s a great incentive,” said De Jong, chair of the firm’s tax group. “Everybody with few exceptions is looking for write-offs that take effect immediately.”
The federal government has made 100% bonus depreciation available before but always on a temporary basis, most recently in 2017-2022. In 2023, it dropped to 80% and then in 2024 to 60%. It was slated to drop to 40% this year before the new law was signed.
Only projects that renovate existing facilities, excluding work on the exterior of the building, qualify for the incentive, De Jong said. That means building operators can replace the HVAC system, install energy efficient lighting and upgrade the plumbing and electrical, as well as make other improvements to the interior of their facilities, in compliance with the depreciation rules. Renovating the roof or upgrading the building exterior wouldn’t quality. Nor would adding an addition.
“If you’re doing something new it doesn’t qualify,” said De Jong. “Enlargement or change in the external structure – those don’t qualify. But changes in the fixtures, flooring – anything that would not constitute a change in the overall structure would qualify."
There are other provisions that could help owners if they want to do exterior work or build something new, De Jong said.
Section 179 of the tax code is a longstanding provision that gives owners a 100% deduction on the cost of certain assets. Because it’s a 100% deduction, it’s been an attractive option in the years bonus depreciation was capped at something lower than that. But there’s a negative. Unlike with bonus depreciation, the amount of expenditure that can be dedicated is capped. This year it’s $2.5 million under the new law.
There’s another limitation. Unlike with bonus depreciation, the deduction can’t be used to generate or increase a tax loss, and it phases out for larger businesses – those that have more than $4 million in qualifying assets, De Jong said. These limits are of more interest to company accountants than to facility managers, but it’s useful to know about them because they impact decision-making on whether to undertake a capital project and when.
繼續閱讀For building owners wanting to include exterior work in the renovation, the deduction can be attractive because it includes roofing as a qualified expenditure. “As long as it’s a needed replacement roof,” he said.
To make it easier to show it’s a replacement roof and not an upgrade, it’s best to replace the roof with something of similar quality rather than with something that would be a step above, he said.
There’s also a provision in the law that creates a new Section 168(n) in the Tax Code that allows for 100% bonus depreciation of new additions, or portions of new additions, if they’re intended for manufacturing or chemical or agricultural production.
“It doesn’t apply to portions of the building that are, like, a lunchroom or an administrative area,” he said. “It’s just for portions that are used for qualified production activity.”
Details about the new Section 168(n) will remain unknown until the IRS comes out with guidance, but based on the language in the law, property owners should find it an attractive addition to the broader bonus depreciation incentive and the Section 179 deduction.
“It’s probably the most significant totally new provision that will benefit some owners,” De Jong said.
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