Change to Section 179 Tax Law for HVAC Equipment
Very Favorable for HVAC Retrofits in 2019
The Tax Cuts and Jobs Act signed Dec. 22, 2017
- Changed a tax law regarding depreciation deductions for HVAC equipment retrofits in 2019 under Section 179 of the tax code.
- Previously, HVAC was generally considered part of the building and depreciated over 39.5 years.
- For HVAC replacements in 2019, the deduction is now 100% of the installed cost this year.
- The change in the tax law, also lowered the tax rate for C Corporations (traditional corporate taxable entities) who are taxed separately at 21%.
The Change in After-Tax Costs of an HVAC Retrofit is Profound
- At the 21% tax bracket, the after-tax cost of a retrofit for a corporation:
- In 2019: $79,000
- Before: $99,468
- For corporations in 2019, on an after-tax basis a $100,000 retrofit cost is $79,000.
- $100,000 deduction at 21% has an after-tax value of $21,000.
- $100,000 – $21,000 = $79,000.
- Previously, on an after-tax basis a $100,000 retrofit cost would have cost $99,468 the year it was installed.
- $100,000/39.5 years = $2,531 annual deduction.
- $2,351 @ 21% = $532 in after-tax value for the deduction each year.
- $100,000 – $532 = $99,468.
- In prior years, the full amount of the cost would have still been deductible over 39.5 years, but of negligible benefit on a present value basis.