by Craig Brightup, The Brightup Group LLC
When President Trump signed the Tax Cuts and Jobs Act (H.R. 1) on Dec. 22, 2017, it ushered in the most significant federal tax reform since 1986. It also marked a huge policy victory for the roofing industry and WSRCA members by way of enhanced IRC Sec. 179 expensing.
The Sec. 179 expensing provision (deduction) is intended to primarily help small businesses purchase needed equipment and write-off the full amount on their taxes for the current year, which is a good thing for roofing contractors. Effective this year, qualifying 179 property includes most business equipment, such as computers and certain vehicles, and construction equipment and machinery purchases qualify. But the big breakthrough for the roofing industry and its customers is that Sec. 179 qualified property now includes improvements to nonresidential roofs!
The new limit on the total amount of Sec. 179 property a business can purchase each year before a phase-out begins is $2.5 million (up from $2 million), and the annual limit for the deduction itself has been raised to $1 million (from $500,000). This means that a property owner can write-off up to $1 million in the year that a commercial roof is purchased. Also, the $1 million annual deduction and $2.5 million maximum business investment limits are now permanent and indexed for annual inflation starting in 2019.
This victory culminates more than a decade of work to shorten the 39-year tax depreciation schedule for commercial roofs, which started in 2003 when then-Sen. Jim Bunning (R-KY) introduced the Realistic Roofing Tax Treatment Act. NRCA led this effort and it’s a great example of why it’s crucial to have strong industry presence in Washington, DC.
Another option for WSRCA members is the IRC Sec. 168(k) Bonus Depreciation Deduction, which has been raised to 100 percent for qualifying new and used property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. Property with a depreciable tax life of 20 years or less generally qualifies and includes machinery and equipment, furniture and fixtures, computers and computer software, and vehicles used primarily in business (with a dollar cap on business cars and trucks that have a loaded vehicle weight of 6,000 lbs. or less).
On a broader scale, the tax rate for C corporations (the corporate tax rate) has been cut from 35 to 21 percent. Also, pass-through entities organized as S corporations, partnerships, LLCs and sole proprietorships get a 20 percent deduction on taxable income up to $157,000 or $315,000 if filing jointly (that’s phased-out at $207,500 or $415,000, respectively). Many contractors use the pass-through structure and pay their business taxes as individual returns, so it helps that the top individual rate has now been lowered from 39 to 37 percent. Please note, however, that the tax rules for pass-through entities are complicated and companies organized as such are encouraged to consult with tax experts about their status.
Finally, for contractors that are family businesses, the new tax code doubles the estate tax exemption so that estates of up to $11 million (or $22 million for couples) are now exempt from taxation. And though the Alternative Minimum Tax (AMT) continues to cover individuals, the exemption and phase-out amounts have been sharply increased.