Back in December, a very important amendment was made to the Section 179 deduction, yet not enough people are talking about it. In the past, HVAC equipment had to be depreciated on tax returns, so the tax deduction for business owners would be spread across 39 years. Now, HVAC equipment qualifies as a capital investment, which can substantially offset the immediate costs for the system and encourage business owners to invest in new and/or upgraded HVAC equipment for their company. Here’s a closer look at the details of Section 179 and how to make it work to your advantage.
About the New Section 179 Deduction
President Trump signed what is known as the Tax Cuts and Jobs Act on December 22, 2017. While the bill itself contained a lot of information, the most exciting thing for HVAC contractors is the Section 179 amendment. As mentioned, HVAC equipment can be used as an immediate, full-price deduction instead of having to be depreciated. So, the business owner can write off the full amount of their HVAC purchase on this year’s taxes, and it applies to both new and used equipment. The limits for this deduction are very generous; $2.5 million of equipment can be written off, with a $1 million actual deduction limit.
Why This Matters to an HVAC Contractor
In short, it matters because you can more easily make HVAC equipment sales to business owners. Instead of having to wait 39 years to recoup the costs of the equipment on their taxes, the owner will see the immediate benefit right away. For example, let’s say you were working with a customer last year who wanted to add $150,000 in new HVAC equipment to their building. With the old tax law, they could only deduct just under $4,000 on their taxes that year for first-year depreciation, which would save them about $1,350 in the amount owed.
Now let’s say you have a customer today who wants to upgrade their building with $150,000 of equipment. On this year’s taxes, they can deduct the entire expense of $150,000, which will equate to over $50,000 in actual cash savings. You can demonstrate this to your customers and point out that the upgrade is really only costing them $100,000 because they will see a big tax savings come April 15th. Note: These calculations assume a 35% tax bracket, and it is important to always consult a tax professional for exact figures.
Make Sure to Act Now
As you know, tax laws change all the time. Deductions come and go, and this one could be gone before we know it (although we hope it isn’t!). As such, it’s important to tell your customers that this deduction is only guaranteed for the 2018 tax year. Section 179 is notorious for fluctuations and changes, so it’s smart to act now.
With this new law in place, everyone wins: business owners can greatly reduce their initial investment, and HVAC contractors can more easily sell HVAC equipment to their customers. Make the most of it while it lasts! If you have any questions about this tax law or any other HVAC issues, please contact CE today.