Section 179 Tax Deduction

Expanded Tax Deduction Incentives Make it a Good Time to Upgrade Your HVAC Equipment

 

The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, was an early holiday gift for businesses planning to invest in upgrading or installing new HVAC equipment.

As part of the new legislation, the Section 179 deduction – which previously excluded HVACR equipment from the Section 179 deduction, treating it instead as a capital improvement and requiring depreciation over 39 years – now allows for deduction on new and used HVAC equipment purchases of up to $2.5 million with a $1 million deduction limit moving forward.

Section 179 has long served as a critical incentive for businesses to invest in new and used equipment and other business-building technologies. Expanding the Section 179 deduction to include HVACR equipment – specifically identified as “heating, ventilation, and air-conditioning” systems – enables business owners to realize considerable savings in the first year, taken at the time they file their tax return for the year of purchase, on this significant environmental comfort improvement. This becomes especially important as companies desire to invest in more efficient, more environmentally friendly HVACR systems that can have long-term savings that can go right to the bottom line.

Whether you need a new furnace for your small business, or an entire rooftop HVAC system for your new warehouse, businesses small and large can benefit from the addition of the HVACR 179 deduction. The savings, realized at tax time, can mean an excellent return on investment the first year.

Before December ’17 Tax Legislation After December ’17 Tax Legislation
Equipment Purchase $180,000 $180,000
First Year Write Off $4,615 ($180,000 over 39 years at a 35% tax rate) $180,000 ($180,000 upfront at a 35% tax rate)
First Year Tax Savings $1,615 (assuming $4,615 x 35% tax bracket) $63,000 (assuming $180,000 x 35% tax bracket)

This also works for smaller purchases as well:

Before December ’17 Tax Legislation After December ’17 Tax Legislation
Equipment Purchase $25,000 $25,000
First Year Write Off $641 ($25,000 over 39 years at a 35% tax rate) $25,000 ($25,000 upfront at a 35% tax rate)
First Year Tax Savings $224 (assuming $641 x 35% tax bracket) $8,750 (assuming $25,000 x 35% tax bracket)

Each year, it seems the type of equipment eligible for Section 179 deductions vary. While 2018 is the first year that HVACR equipment qualifies, there is no guarantee that the deduction specific to HVACR will continue indefinitely, so now is the time to take advantage.

Use IRS Form 4562 to Elect a Section 179 Deduction

The form used to report information for a Section 179 deduction is IRS Form 4562.This form collects information on business property acquired and put into service. For more details on completing Form 4562, see the IRS instructions for this form.

For More Information on Section 179 Deductions

Get more information on types of property and equipment qualified and excluded and other information, from IRS Publication 946: Depreciation.  In addition, there is a website dedicated to the Section 179 deduction and provides excellent explanation at http://www.section179.org.

Of course, we strongly recommend consulting your tax advisor, so they can provide specific advice related to your unique tax situation and determine how to best put the benefits of a Section 179 deduction to work for your business.