The recently-enacted Tax Cuts and Jobs Act of 2017 included a provision to allow HVAC products to be immediately expensed. Under Section 179, all components of a “heating, ventilation, and air-conditioning” system can now be deducted in full during the first year, instead of being slowly depreciated over 39 years. This is great news for small businesses!
New tax law effective January 1, 2018: 26 U.S. Code § 179 – A taxpayer may elect to treat the cost of any section 179 property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the section 179 property is placed in service. Qualified Real Property includes Heating, ventilation, and air-conditioning property.
What this means for the owner of a commercial building: The cost of any commercial HVAC equipment placed in service after January 1, 2018 can be deducted as a business expense under Section 179.
Example: A business owner installs a new heating and air-conditioning rooftop unit. The total cost of the equipment and labor for installation is $14,000. Under old depreciation rules, the owner could only claim approximately $350 in depreciation expense annually over a 39-year period. Under the new law, the owner can deduct the entire $14,000 cost of the HVAC replacement project from their business income in the year of the purchase and installation. At the top marginal tax rate that would be applied to this purchase, this can save the business owner $5,180 in taxes.
For more information, check out the infographic below and the following article.