When you invest in HVAC equipment, you can write-off the investment on your taxes, and a commercial air conditioner is no exception. However, you may have heard that there are strict rules for doing so that are a bit more complicated than just writing down the total cost of your commercial air conditioner and keeping the receipt. HVAC equipment once needed to be depreciated, but not anymore.
The tax laws for writing off your HVAC system changed in 2018 with code 179. If this is the first time that you’ll be writing off an air conditioner since then, it’s worthwhile to familiarize yourself with the rules. Here’s what you need to know about commercial air conditioner depreciation.
The New Tax Rules for HVAC Equipment
Starting on January 1, 2018, federal tax code 179 was changed. This new tax law allows businesses to deduct the total cost of their HVAC equipment in the same year that it comes into service. This means that if you buy a new commercial air conditioner in 2021, and it is up and running before the end of your tax year, then you can deduct the cost. There’s no more calculating depreciation or keeping track of the expense for 39 years.
The goal of this new change is both to incentivize businesses to invest in new, more energy-efficient HVAC equipment and to simplify the tax code. This change does apply to all commercial heating, ventilation and air-conditioning equipment.
This deduction is not just the cost of the equipment itself either. You can also write-off the cost of the labor. The total invoice that we give you should be deductible in tax, if you choose to use it. Of course, you should not expect to get the full investment value back in a tax break. It will all depend on your business’s specific tax situation.
The Benefits of Tax Code 179
What kind of benefits will your business experience as a result of this tax law change? Here are a few:
- Easier investment: Getting your tax deduction immediately can make it easier for you to afford investing in the equipment that you need.
- Better equipment: In fact, you may be able to invest in better equipment that uses less energy or better meets the needs of your customers because you’re getting your write-off in full right away.
- Simpler taxes: It’s always a good idea to simplify the work of your accountant and make it easier for you to understand your taxes.
What About Old Equipment?
Unfortunately, if you invested in HVAC equipment before 2018, you will have to keep following the old depreciation rules for this equipment on your taxes. Each year for 39 years, you get to deduct a portion of the overall investment that you made. But, at least this frustrating system is on it’s way out!
Are You Ready For New Commercial HVAC Equipment?
This tax code change is only the start of the benefits that your business can receive from new HVAC equipment. Reach out to us today to discuss your needs.
FAQs
It also depends on whether you use the HVAC for residential or commercial use. For example, the average life of an air conditioner as part of an HVAC system is typically 27.5 years. If you have a commercial real estate HVAC system, the tax life increases to 39 years.
Can you take 179 depreciation on HVAC? ›
Now, Section 179 “allows your business to write off the entire purchase price of qualifying equipment for the current tax year” (Section 179.org). In 2021, businesses can deduct the full price of qualified HVAC equipment purchases, up to $1,050,000. There's a total equipment purchase limit of $2,620,000.
How do I calculate depreciation on my air conditioner? ›
To calculate depreciation on appliances:
- Multiply the age of the appliance by the replacement cash value.
- Multiply this product with the depreciation rate to obtain the depreciated value of appliances.
- Subtract the depreciation value from the replacement cash value to find out the actual cash value of the appliance.
Qualified Improvement Property on HVAC qualifies when the assets are interior, but not when they are externally located. Qualified Improvement property examples for HVAC could be internal VAV boxes or ductwork. This affects HVAC bonus depreciation, internal components would qualify, but external components would not.
What is the useful life of a HVAC system? ›
In general, most HVAC systems will last 15 to 25 years, but depending on the type of system and other contributing factors, that estimate can be highly variable. Even with HVAC maintenance and regular repairs, eventually, even the best boilers, furnaces, heat pumps, and air conditioners today will run their course.
Is an HVAC unit a building improvement or equipment? ›
Technically, it can be both equipment and a building improvement. HVAC systems like a heat pump, air conditioner, or furnace are pure definitions of equipment. In this case, they're heating and cooling equipment. They also match the definitions for building improvements.
What is the depreciation method for HVAC? ›
As for depreciation, if they are part of the central HVAC system you have to depreciate them over 27.5 years. If they are stand alone units, more like window AC units (i.e. not a part of the structure of the building) then you can depreciate them over a seven year period.
Can you write off HVAC on taxes? ›
The total amount you can claim in a year is $1,200, but there are some limitations. For instance, the total tax credit cannot exceed more than 30% of the total cost of your new HVAC units or any other upgrades you make. New high-efficiency furnaces and air conditioners are also capped at 30% or up to $600.
What qualifies for 179 depreciation? ›
Internal Revenue Code Section 179 allows businesses to expense the full purchase price of qualifying equipment and/or software purchased during the tax year. When you buy a piece of qualifying equipment, you may be able to deduct the full purchase price on your business income tax return.
Can you take bonus depreciation on HVAC system? ›
The CARES Act reduces the depreciation schedule to 15 years and creates a bonus depreciation that allows the taxpayer to take a full deduction of certain costs in a single year. The 100% bonus depreciation applies to qualified property acquired and placed in service before January 1, 2023*.
A common question many business owners have is, “Does my commercial HVAC system qualify for bonus depreciation?” The simple answer to this question is no, HVAC systems do not qualify for bonus depreciation. However, air conditioning and heating systems do qualify as section 179 equipment.
What is the formula for amount of depreciation? ›
Amount of Annual Depreciation = Cost of Machine − Scrap Value of Machine Life in Years = 1 , 20 , 000 − 72 , 000 4 = Rs 12,000 Rate of Depreciation = Amount of Depreciation Cost of Machine × 100 = 12 , 000 1 , 20 , 000 × 100 = 10 % p.a.
Is an HVAC system a fixed asset? ›
Typical fixed assets include buildings, furniture, large pieces of equipment, and systems such as lighting and heating, ventilating, and air conditioning (HVAC). Fixed assets are usually one-time investments and have longer life spans.
Can you take bonus depreciation on HVAC for rental property? ›
Which properties qualify for TCJA bonus depreciation? The main IRS rules for claiming bonus depreciation are: A qualified non-residential property such as retail centers, hospitals, hotels, and motels. Qualifying improvements to the property, such as replacing HVAC, flooring, plumbing, or lighting.
What type of property is an HVAC? ›
Fixtures are a special category of tangible personal property that have become attached to real estate. For example, a central air conditioning unit is a fixture and stays with the house if the home is sold.
How often should commercial HVAC units be replaced? ›
If your commercial HVAC system is 15-20 years old and looks like a large chunk of rusting metal on the top of your building, it's probably time to replace it. Most commercial HVAC systems are less efficient and due for an upgrade around this time.
What is the depreciation rate for air conditioner office equipment? ›
If an air-conditioner is used in a business and falls under the category of a block of assets (collection of assets that falls under the same asset class), the applicable depreciation rate is 15%. As per Section 32(1) (ii), different depreciation rates are applicable for different assets.
Are HVAC units eligible for bonus depreciation? ›
The CARES Act and TCJA Can Make HVAC Retrofits Eligible for 100% Deduction and Bonus Depreciation. At a time when improved indoor air quality is more important than ever to reopen schools and business safely, tax incentives make this an excellent time to invest in new HVAC equipment.
What is the depreciation life of commercial building improvements? ›
Commercial Real Estate Depreciation
This process is called depreciation. Most commercial buildings have a 39-year life, although you can speed up the process and claim your depreciation in less time.
When you invest in HVAC equipment, you can write-off the investment on your taxes, and a commercial air conditioner is no exception. However, you may have heard that there are strict rules for doing so that are a bit more complicated than just writing down the total cost of your commercial air conditioner and keeping the receipt. HVAC equipment once needed to be depreciated, but not anymore.
