The 2020 CARES Act QIP tax incentive, explained

A major new tax incentive allows you to write off 100% of qualifying facility improvement costs in the first year of the project. Here’s what you need to know.
Discover how we can help you take advantage of the CARES Act incentive. Call us directly: 888-445-5779

Let's talk opens in new window Call us directly

What is the QIP tax incentive, and how does it create savings?

It may seem surprising, given the economic uncertainty caused by the pandemic, but right now is an excellent time to invest in non-residential facility upgrades.

Here’s why: When you do invest in facility upgrades — e.g., install a new HVAC system — you get a tax deduction for the project costs. Upgraded facilities are called qualified improvement properties (QIPs). In the past, this QIP deduction was taken over a 39-year period, resulting in a 2.5 percent write-off each year.

That’s now changed. The 2020 Coronavirus Aid, Relief, and Economic Stability (CARES) Act allows a full deduction of certain project costs in a single year, with no limit on the size of the project. That can create big savings. If you’ve been waiting for the right time to make major facility upgrades, the wait is over.

What else do you need to know about Section 168 deduction?

There’s no limit on the cost of equipment that can be expensed. You can combine it with other incentives, such as renewable energy tax credits and utility rebates, for extra savings.

What facilities qualify for the full deduction?

Qualified improvement properties (QIPs) are properties that have recently been upgraded, including:

Hospitals and healthcare facilities
Office buildings
Factories and plants
Logistics facilities

What facility upgrades can benefit from the accelerated deduction?

Non-structural upgrades (including both equipment and installation costs) to the interior envelope of existing facilities, including:

Building management systems
Sensors, valves, actuators, and other HVAC devices
Uninterruptible power supplies, switchgear, and other electrical distribution equipment

What isn’t included in QIPs?

New construction
Upgrades to the facility’s structure (e.g., expansions, remodeling, etc.)
External envelope of the building (e.g., windows, doors, roof, cladding)
Residential structures
Certain equipment (e.g., elevators)

Example cash savings of a QIP project cost

Example cash savings of a QIP project cost

A fictional hospital invests $1,000,000 in a digital building management system upgrade, including new smart devices (e.g., sensors, room controllers, valves, actuators). The chart shows the tax benefits before and after the changes the CARES Act made to Section 168 of the tax code. The benefit of the accelerated depreciation results in a cash savings of $204,615 in year one.

^{Note: This example is fictional, not a guarantee of actual savings, and is not intended to be tax or legal advice. Tax calculations are complex; consult your tax advisor for more specific guidance.}

Major financial ROI implications

Modernization and energy efficiency upgrades typically pay for themselves in a few years. Our own analysis of our customers’ projects found that digitization projects led to returns on investment (ROI) of 5.3 years, on average.¹ The amended Section 168 unlocks a 21 percent cash savings on top of the typical cost savings from facility improvements, which can lead to dramatically faster ROIs.

^{1 Global Digital Transformation Benefits Report Schneider Electric, 2019.}

Need help?

Where to buy?

Easily find the nearest Schneider Electric distributor in your location.

Search FAQs

Search topic-related frequently asked questions to find answers you need.

Contact Sales

Start your sales inquiry online and an expert will connect with you.

All Support & Contact

Find answers now. Search for a solution on your own, or connect with one of our experts.