Economic Stimulus Opportunities Section 179 Tax Incentives Applies to equipment or machinery purchases by a business HVAC does not normally qualify because it is purchased by the building owner/tenant in order to provide “comfort conditions” HVAC equipment that is purchased for “process” purposes does qualify under Section 179 It is the application not the location that matters to the IRS
Economic Stimulus Opportunities Section 179 Tax Incentives Increased limit on equipment deductions — $250k first year expense deduction limit for small businesses (less than $800k in machine expenses) 50% bonus depreciation if placed in service in 2009 In 2010 the limits and advantages drop — Expense deduction limit drops to $128k — Total machine expense limit drops to $510k
Economic Stimulus Opportunities Section 179 Tax Incentives When classified as a Section 179 asset the item becomes “personal property” HVAC equipment classified as Section 179 assets qualify for 7 year accelerated depreciation
Economic Stimulus Opportunities Section 179 Tax Incentives To qualify the item must not have been used before — In a spec building the tax benefits will almost always go to the developer — Developer would likely have to apply for a “catch-up study” to reclassify the equipment if the purpose changes to “process” — In a build-to-suit or owner-built the tax benefits might flow to the business owner — Most likely will be used for “process” from the start
Economic Stimulus Opportunities Section 179 Tax Incentives In order to determine if a piece of equipment qualifies requires a review by a construction tax law specialist In order to determine how large the tax advantages can be also requires a “cost segregation study” by a construction tax law specialist
Economic Stimulus Opportunities Section 179 Tax Incentives The value of the “personal property”…its tax “basis” can be comprised of: — Equipment price — Installation labor cost — Prorated material handling cost — Prorated electrical cost — Prorated gas piping cost — Prorated engineering cost — Prorated architectural cost — Prorated GC fees
Economic Stimulus Opportunities Section 179 Tax Incentives Example 50% BONUS DEPRECIATION OLD LAW (pre-2008 change and 2009 extension) - $30,100 New Machine 1 st year Total Depreciation = 14%= $4,214 2009 LAW - $30,100 New Machine 1 st year Bonus Depreciation: 50% of $30,100 basis= $15,050 PLUS 14% regular depreciation on remaining property basis ($15,050) = $ 2,107 TOTAL 2009 Deduction on $30,100 machine = $17,157 That’s 4 times the Tax Deduction for 2009 new machine purchase than in 2008! The deduction almost equals the cost of the equipment itself!
Economic Stimulus Opportunities Section 179 Tax Incentives Examples Factory with paint or fume exhaust system — Direct-fired make-up air unit is necessary to offset this exhaust…no comfort involved Warehouse with temperature/humidity critical pharmaceuticals — Air turnover unit with cooling is necessary to maintain product temperature…comfort cooling is an accidental byproduct
Economic Stimulus Opportunities Section 179 Tax Incentives Examples Kitchen with exhaust hood — Direct-fired make-up air unit is necessary to offset this exhaust…no comfort involved Outpatient surgery clinic — DOAS unit with high filtration and high ventilation rates necessary for infection control…comfort of surgical staff is an accidental byproduct
Economic Stimulus Opportunities Section 179 Tax Incentives Examples Injection-molding facility — Gas-fired unit with cooling is necessary for molding machine controls temperature control…comfort cooling is an accidental byproduct Printing facility — DOAS unit with dehumidification and desiccant wheel is necessary for control of paper curling…comfort is an accidental byproduct
Economic Stimulus Opportunities Section 179 Tax Incentives Almost every Applied Air application is a process application Not every owner knows about these incentives Even owners who know will appreciate your focus on their issues Sets you apart from a “box salesman” Must reach the owner either on your own or with your design/build contractor
Economic Stimulus Opportunities Section 179 Tax Incentives Tax advice resources: Robert B. Kaczmarek, ASA Wipfli LLP Director, Cost Segregation 10000 Innovation Drive, Suite 250 Milwaukee, Wisconsin 53226 414.259.6732 (direct) 414.810.9685 (cell) 414.431.9303 (fax) Crystal LaPlant, CPA, MST Wipfli LLP Tax Partner – Commercial Real Estate John Schwab Wipfli LLP Senior Partner – Construction Division
Your consent to our cookies if you continue to use this website.