Show Your Customer the Huge Tax Write Off for a 2018 Retrofit

A change in the tax law at the end of last year is a game-changer providing great economic benefit for HVAC retrofits along with installations of fire protection, alarm and security systems. But, there is a “catch” – the project has to be installed and operational this year. This is the perfect opportunity to close quick turn around jobs by year-end. Let your customers/prospects know about the tax incentive and why they need to act quickly.

This article lays out a simple process to introduce the new tax law to your customers/prospects by providing:

  • a mathematical example of how the tax benefit causes a 5-year payback job to have a “real payback” of 4 years;
  • an example of how to target the low-hanging fruit in your customer base and a method to get the message out to a number of customers and prospects; and
  • how to guide your customer to the right spot to learn more about the new tax.

This will be news to many of your customers who do not know about this change in the tax law. Even if they do, they will still appreciate your effort to bring it to their attention.

Before we get started:

  • Don’t worry – you do not have to be a tax expert. The approach is simple.
  • If you are already pitching this tax benefit in your selling efforts today, kudos because many of your competitors are not. But, read on and hopefully you will find this helpful.
  • If you are not pitching this today, some of your competitors are and this is the time to catch up.
  • The new law applies only to retrofits – it is not available for new construction.

These are the steps to follow using an example of a HVAC retrofit.

Understand the Math: share it with your customer/prospect

A 5-year payback job has a “real payback” of 4 years due to the 2018 tax benefits.

If your customer spends $100 on an HVAC retrofit, they can write off (or expense) the full $100 cost. If they are in the new 21% tax bracket (as also established for corporations for 2018), they save $21 on their tax bill. On an after-tax basis, the real price of the retrofit is $79 this year. If your customer is an LLC, their benefits could differ but let’s keep it simple with a corporation taxed at 21%.

Here is an example assuming a chiller replacement:

  • Total installed cost of $300,000
  • Annual energy and maintenance savings of $60,000
  • Simple payback of 5 years (300,000/60,000)

Due to the tax benefit in 2018, the real cost of the project is $237,000:

  • 300,000 X .21 = 63,000 (tax savings)
  • 300,000 – 63,000 = 237,000 (the real cost of the project)
  • 237,000/60,000 (annual savings) = 3.95 years payback



Targeting Opportunities: the low-hanging fruit

Your selling instincts will lead you to where/how you take this out to the market. Here are some things to consider:

For existing customers, concentrate on those who have quick change-out jobs and have acknowledged the equipment needs to be replaced. If they delay until 2019, it might be too late. For example, the HVAC tax rules for 2018 are very different from those of last year. If your customer still wants to delay the project due to a lack of capital, offer a financing proposal from EnFlux, or, another trusted financing partner.

For prospects, let’s imagine they were unaware of the tax change. You will get a big check mark for letting them know. What if your prospect places a call to the existing service provider (your competitor) inquiring as to why they had to learn about this from you? Your competitor is left in the unenviable position of having to explain: 1) they weren’t aware of the tax change, or, 2) they were aware of it, but had not shared it with your prospect. Neither is a good answer.

You can use this as a touch point for your customers/prospects. One way to do this is to send an email informing them of the change in the tax law and how time is running out. To make the process easier, feel free to go to the EnFlux website and scroll down the page for a simple one-page handout that can be downloaded and attached to the email. Let us help you tell the story!

The Complicated Stuff (and how to handle it)

Due to our complex tax laws, the devil is in the details as to how your customer can benefit. That’s OK – you’re not expected to know all of this. Quite likely your customer is not aware of these changes unless they are a large developer or have already changed out HVAC equipment this year.

When introducing the tax change, let your customer know there are limitations that can apply which they will need to explore with their tax counsel. For those in the tax business, the application of the new law is simple to interpret.

You should direct your customer to this link: The Tax Cuts and Jobs Act of Dec. 22, 2017 for the details. This topic has been covered in various industry publications but as a precaution, you should not direct customers to those articles. Some are simply incorrect.

The Gray Area

It is clear the new law applies to “HVAC” but the IRS failed to define exactly what type of equipment falls under the definition. Equipment that is clearly HVAC is included, but there is less certainty with other types of installations. This is what I believe to be the case based on conversations with tax attorneys:

  • control systems could qualify provided their primary purpose is to control HVAC systems, as opposed to those whose primary purpose is to control lighting, and
  • lighting upgrades might not qualify – they were allowable in prior tax laws (Section 179d) but were not specifically mentioned in the language for 2018 (Section 179 – without the “d”).

Your customer/prospect will need to work with their tax counsel to determine how they can benefit from the new tax law. They certainly have an incentive – writing off 100% of a retrofit this year is plenty of motivation.

Hopefully, this article can boost your year-end project sales. At a minimum, you introducing the new tax law will be appreciated by your customers and prospects. Please do not hesitate to contact me at lderrett@enfluxbuildingsolutions or call 713.714.0575 if you have questions.

Good luck.


Please note EnFlux Building Solutions does not provide tax advice and your customer should check with tax counsel as to the benefits from the change in tax law from the Tax Cuts and Jobs Act of December 22, 2017.


About the author:  Larry Derrett is the founder and CEO of EnFlux Building Solutions, which provides contractors with access to financing, energy solutions, and online sales tools to help them win more business. Larry brings a unique perspective to financial selling having sat on both sides of the desk as a banker and a CFO.  In addition, he has a very strong background in developing financial selling techniques for clean energy projects ranging from a simple $10,000 change out to projects for hundreds of millions of dollars for Fortune 500 companies.  For three years, he led the financial structuring group at Enron Energy Services working solely on the origination side of the business helping clients understand the importance of allocating capital to energy efficiency projects. Upon the demise of Enron, he formed HVAC Capital Corp whose clients included large mechanical contractors with a national footprint. HVAC Capital provided a finance program that contractors could access to offer financing to their customers for replacement projects.  During this time, Mr. Derrett trained hundreds of sales reps at mechanical contractors on the finer points of incorporating financial selling into their sales process.