Whether it’s the dog days of summer or deep freeze of winter, keeping your tenants and customers comfortable is a mission-critical service to the livelihood of your business operation. And thanks to recent changes to Section 179 of the Tax Cuts and Jobs Act of 2017, new HVAC equipment may also bring some relief on your annual taxes.
What does Section 179 mean for my business?
Historically, businesses could write off approved equipment purchases under Section 179; however, the cost had to be depreciated over multiple years — spreading out the purchase amount amount over the life of the asset. With the latest amendments to Section 179, that has changed. According to Section179.org, the revised tax code allows “businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year,” saving business owners on taxes year over year.
What passes for “qualifying equipment” was also expanded to include specific property related to lodging as well as non-residential home improvements, such as roofs, heating/air conditioning, ventilation, fire and alarm protection services. And as an added bonus, qualifying equipment only needs to be considered “new to you,” meaning new and used equipment are covered, regardless of whether they’re leased, financed, or purchased outright.
In addition to specifying HVAC equipment and components, Section 179 also mandates that the equipment be used for business purposes at least 50 percent of the time and sets monetary caps. Under 2018 guidelines, businesses can spend up to $2,500,000 on qualifying equipment and write off up to $1,000,000 on their taxes. Keep in mind that if your purchases exceed the caps, you’ll miss out on any above-and-beyond deductions. Also, these maxes only apply for 2018, so expect some adjustments annually to reflect inflation.
The tax laws are reviewed annually, and in some years, Section 179 has been amended mid-year. So, it’s financially beneficial to recognize the deduction sooner rather than later, especially for those who have budgeted for HVAC maintenance this year. As the year begins to wind down, keep in mind that all equipment must be purchased and installed between January 1 and December 31 of the tax year you’re claiming. If you miss the cut off, you’ll need to wait until the next tax cycle and adhere to any revised guidelines.
Difference between Section 179 and Bonus Depreciation
Section 179 and Bonus Depreciation have some similarities because they both offer deductions for approved equipment. Since Section 179 has lower caps, those are applied first, followed by Bonus Depreciation, which benefits purchases that exceed allowable amounts under Section 17 ($2,500,000). Also, companies that qualify for Bonus Depreciation can take a first-year deduction on approved business equipment, thereby accelerating the depreciation and seeing increased tax relief.
Small- and medium-sized businesses will see the greatest value with Section 179, simply due to their available budget.
Get Your Tax Break in 2018
Our expert team of HVAC technicians are available to identify commercial heating and air solutions that fit for your business and budget. Contact our team to schedule a consultation today.