QIP & CARES Act

This week on the Bright Ideas series by Acuity Brands®, Catherine Bruce was joined by Cheryl English, the Vice President of Public Policy, and Michael Shaw, the Vice President of Tax. Cheryl and Michael joined to explain the details of a bipartisan tax benefit opportunity to write off equipment purchased during a building renovation: the 2020 CARES Act.

WHAT IS THE 2020 CARES ACT?

The CARES Act is the Coronavirus Aid, Relief, and Economic Security Act. It is a bipartisan bill passed in March of 2020, which focuses primarily on providing aid and relief for workers and small businesses due to the pandemic.

The CARES Act includes an important correction to a tax law that was passed in December of 2017 in the Tax Cuts and Jobs Act. This is specific to QIP, and it allows a tax deduction for 100% of the cost of building renovations for the interior of any commercial, non-residential building.

This law is actually retroactive to 2018, so any building owners who have improved the interior of their buildings going back to 2018 can file amended returns and receive tax refunds. That’s a tremendous benefit.

WHAT IS QIP, AND WHAT QUALIFIES?

QIP stands for Qualified Improvement Property. It’s a term used by the IRS to define any property that is used in renovations and improvements to the interior of commercial buildings.

Qualifying items within QIP include interior lighting systems and smart building controls. Many people are upgrading their lighting and controls with more modern systems. Another popular item that qualifies is building controls. Most anything else that qualifies has to do with the cosmetics of an interior of a building.

That being said, there are a few debatable exceptions to what is considered “interior.” Some specific items mentioned by the legislation that do not qualify for QIP are roofing systems, elevators and escalators, and HVAC systems.

Additionally, even though indoor lighting is covered under this law, outdoor lighting is not specified as QIP property. Most tax advisors would say it does not qualify, though there are some who believe it’s a gray area. It’s recommended that if you’re undertaking outdoor lighting improvements, you should consult with a tax advisor to determine whether it qualifies for the tax reduction.

HOW LONG CAN BUILDING OWNERS TAKE ADVANTAGE OF THE CARES ACT?

This tax law phases out at the beginning of 2023, which makes it vital to act now on any plans to renovate the interior of a building. This is a huge opportunity to not only renovate buildings, but also save energy. Every month that commercial building owners delay, they’re losing that opportunity to reduce their energy usage.

For example, a building owner who completes lighting renovations with products from Acuity Brands will not only get improved quality lighting in their facility; they’ll also reduce their maintenance costs and save on energy. Just replacing 3-lamp fluorescent troffers with Lithonia Lighting® BLT low-profile LED luminaires can reduce up to 60% in energy usage right off the bat.

If nLight® sensors are added to those fixtures for occupancy sensing, the energy savings could go up to 75%. Then, if the building integrates daylight, daylight harvesting can increase those savings to 83%. It’s really a win-win-win opportunity.

It’s advisable not to delay, but to consult a tax advisor in order to get the most benefit possible out of this new law and understand the full scope of how the CARES Act could apply to your project. You can also visit insights.acuitybrands.com/commercial-office/qualified-improvement-property to learn more. Next week, Bright Ideas will dive into the significance of ultra-violet lighting and its use in disinfection.

 

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