What to Know About Commercial HVAC Tax Incentives

Tending to your HVAC needs is an essential but costly component of operating your commercial building. Thanks to Section 179 of the IRS Tax Code, however, qualifying companies can save a lot of money on their heating and cooling needs over the years. Originally established in 1958, this tax code is updated regularly, and was most recently impacted by the 2020 CARES Act, making it an excellent time for commercial businesses to invest in their HVAC needs.

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What Is Section 179?

U.S. Tax Code Section 179 is a tax incentive designed to provide deductions for commercial businesses that install system upgrades. Through this tax incentive, commercial businesses may choose to treat the cost of any Section 179 property as an expense not chargeable to the capital account. Any such costs will be considered a deduction for the taxable year in which heating, ventilation, and air conditioning services occurred.

Will the 2020 CARES Act Impact Section 179 Deductions?

According to IRS Tax Code Section 179, new HVAC installations provide a tax deduction for the project costs, which is spread across a 39-year period. Put simply, only 2.5% of your total commercial HVAC installation project can be written off each year during the specified time frame.

With the 2020 CARES Act, however, commercial businesses now stand to save even more on their heating and cooling expenses. Thanks to the CARES Act, a drafting error in the Tax Cuts and Jobs Act was corrected to consolidate depreciation regulations into a single definition: Qualified Improvement Property. It also changed depreciation guidelines that previously failed to include Qualified Improvement Property as being eligible for the accelerated 100% bonus depreciation that the Tax Cuts and Jobs Act offered.

These corrections allow commercial businesses in New York City that have been negatively impacted by the COVID-19 economic crisis to not only obtain accelerated deductions but also carry losses back to prior years and gain more refunds. This means that thanks to the COVID-19 relief package, some heating and cooling project costs can earn a full deduction in a single tax year rather than having to write off smaller amounts over a longer time period.

Does Your Commercial Facility Qualify for HVAC Tax Benefits?

It’s important to note that only certain commercial buildings can qualify for Section 179 tax incentives, and project spending is capped under the CARES Act to $2.59 million for equipment purchases. Businesses may only claim a maximum deduction of $1.04 million under the Section 179 modification. However, by taking advantage of the Section 168(k) Tax Code bonus depreciation option, you may be able to write off any additional expenses exceeding the $1.04 million cap under the Section 168(k) bonus depreciation.

Types of Commercial Facilities That Qualify

In order to receive the full deduction, your commercial facility must fall under one of the following categories:

Office building
Hospital/healthcare facility
Logistical facility
Factories or manufacturing facilities
Other, non-residential facilities

If you’re unsure whether or not your commercial building qualifies for a full deduction, consult with your tax attorney to understand your options.

AFGO Mechanical for NYC’s Commercial HVAC Services

With all the tax incentives available to commercial building owners, it’s never been a better time to schedule commercial HVAC installation or replacement. AFGO Mechanical offers state-of-the-art heating and cooling solutions for commercial businesses throughout the New York City region, including Manhattan, Brooklyn, Queens, the Bronx, Staten Island, Long Island, and Westchester County.

Contact our team to schedule HVAC installation, replacement, or retrofit services in your commercial facility today!