Federal Incentives

Now is the time to invest in your fire sprinkler system or retrofit your
building with lifesaving and property conserving protection.

In December of 2017, Congress passed the most sweeping tax reform legislation since 1986. Included in this legislation (P.L. 115-97) was a provision to incentivize the installation of fire sprinklers for small business owners (Section 179). Inadvertently left out, was the provision for high-rise commercial buildings (Section 168). We are happy to report that the correction for high-rise was made in the Coronavirus stimulus package CARES Act which passed on March 27, 2020.

The Fire Sprinkler Incentives Are:

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.

Cost Recover Section 13201 Temporary 100 Percent Expensing for Certain Business Assets – Previously sprinkler systems in commercial structures were depreciated over a 39-year time horizon. Under the new law any sprinkler system installed or upgraded after September 27, 2017 in an existing commercial 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 is as follows:

2023 80%
2024 60%
2025 40%
2026 20%
2027 The depreciation schedule is now permanently set at 15 years

Example 1: Nightclub Retrofit

7,500 square-foot assembly occupancy
Cost to install fire sprinklers = $6.00/sq.ft.
Total $45,000

Assuming this is owned by a small business, under 179 they could fully expense the cost. The 179 change is permanent law and is not subject the phase out.

Previously these improvements were depreciated over 39 years.

Example 2: Bowling Alley

20,000 square-foot assembly occupancy
Cost to install fire sprinklers = $4.50/sq.ft.
Total $90,000
Same as Example 1

Note: These are specific examples of actual buildings in various locations around the country. The actual cost is impacted by many variables, including the region of the country. Please reach out to NFSA or find a member on our website to assist in your particular situation and for a quote specific to your building and region.

Example 3: High-Rise Office

18-story high-rise with 26,000 sq.ft./Floor =468,000 @ $6.50/sq. ft.
Total Cost = $3,042,000
You would be able to fully expense for the first 5 years.
Beyond this 5-year window you will be able to recover the costs in the following manner:
Year 6=80%; Year 7=60%; Year 8=40%; Year 9=20%;
After year 10 it will depreciate on a 15 year schedule not the previous 39 year schedule
Any percentage not fully expensed would then be amortized over a 39-year window.

Previously these improvements were depreciated over 39 years.

For more information about the Tax Reform for Fire Sprinklers go here.