While the preservation community cheered the retention of the historic tax credit program in late 2017, few may have noticed that included in the tax reform legislation were two provisions that will assist property owners interested in making their historic structures safer.

Both provisions deal with the expensing and depreciation of sprinkler systems — a critical and often costly update to adaptively reused historic buildings.

Cost Recover Section 13201

Previously sprinkler systems in commercial structures were depreciated over a 39-year period and residential structures over 27.5 years. Under the new law any sprinkler system installed after September 27, 2017 in either a commercial or residential structure until December 31, 2022 will be able to be fully expensed. Therefore, the property owner will be able to immediately write off the full cost of the sprinkler system. After 2022 the ability to deduct the cost gradually decreases until it returns to its previous state in 2027.

Small Business Section 179 Expensing

Previously qualified small businesses were allowed to fully expense purchases such as computers, equipment and light duty vehicles up to an annual cap of $500,000. Under the new law Congress has added fire protection as an eligible expenditure under section 179 of the tax code. Congress also increased the cap to $1 million as the amount that a small business can deduct in a single year. This provision applies only to commercial structures and cannot be used for retrofitting sprinklers into residential structures. However, critical occupancies such as entertainment venues could easily be done under this provision. This change is also a permanent law and unlike section 13201 is not gradually phased out over time.

To learn more about both programs, visit the website of the National Fire Sprinkler Association.

Fire Sprinkler Tax Reform One-Pager

Preservation Maryland and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should always consult your own tax, legal and accounting advisors before engaging in any transaction.