Economic Stimulus
Opportunities…an update
Economic Stimulus Opportunities

Section 179 Tax Incentives…a deeper
look…and more opportunities
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
• An example calculation:
— Equipment price
$20,000
— Installation labor cost
$ 6,000
— Prorated material handling cost $
800
— Prorated electrical cost
$ 1,000
— Prorated gas piping cost
$
800
— Prorated engineering cost
$
500
— Prorated architectural cost
$
500
— Prorated GC fees
$
500
— Total “Basis”
$30,100
Economic Stimulus Opportunities

Section 179 Tax Incentives Example
50% BONUS DEPRECIATION
OLD LAW (pre-2008 change and 2009 extension) - $30,100 New Machine
1st year Total Depreciation = 14%
= $4,214
2009 LAW - $30,100 New Machine
1st year Bonus Depreciation: 50% of $30,100 basis
PLUS 14% regular depreciation on remaining property basis ($15,050)
= $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