HVAC Special Tax Benefits for Corporations for 2019

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.

Other Considerations

  • There are maximums on the amount of the deduction allowed in 2019 of $1,000,000, or a total installation cost of $2,500,000.
  • The benefits to ownership could be different if the borrower is a flow through entity for tax purposes.
Please note EnFlux Building Solutions does not provide tax advice and you should check with tax counsel as to the benefits from the change in tax law from the Tax Cuts and Jobs Acts of December 22, 2017.

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