Did you know …
We’ve been hearing rumors for some time about benefits of the sweeping tax reform that was in the process of being initiated, but not until very recently have we been able to quantify what this means to our clients.
The great disclaimer that must precede this announcement is that we are absolutely NOT tax consultants! In fact, we strongly encourage you to seek out professional advice and recommendations from a tax professional who can help you calculate the net benefit for what is going to be shared here. While we’re not CPA’s, we are an HVAC contractor who dearly cares about our clients and are genuinely excited about sharing what we’ve learned.
The recently passed Tax Cuts and Jobs Act included a provision to allow HVAC products to be immediately expensed! Under Section 179 (26 U.S. Code S 179), Small Business Expensing, all components of a “heating, ventilation and air-conditioning” system can be expensed in the first year instead of being depreciated over 39 years, which was the previous law. To put this in terms you will really understand, if a new Roof Top Unit costs $14,000 for example, the old law would provide for approximately $350.00 of depreciation expense, only nominally impacting tax liability. With the new law, the corresponding impact of full depreciation would result in a reduction to tax liability by over $5000! Again, we’re not CPA’s but can you imagine changing out multiple Roof Top Units or Boilers on a Commercial building? It’s an amazing benefit that will go right to the bottom line of any business capitalizing on this opportunity!
This is a staggering benefit to businesses in general, but to those businesses who have recently deferred changing out old equipment due to the costs, this is an incredible incentive that should be acted upon sooner than later. We don’t have a crystal ball to foretell the future, but if this new law was ever rescinded or modified, folks would be kicking themselves for not taking advantage of it while available.
In our business, we are called upon frequently to keep old, outdated equipment running as good as possible for its age and condition. We service countless units that have long exceeded their utility life. In the past, decisions on whether to repair or replace were heavily debated and costs for each were weighed with sometimes agonizing uncertainty … do you spend a thousand or more dollars to make a repair on an old inefficient piece of equipment and take the very real gamble that this expenditure is not merely throwing good money after bad? We have unfortunately been directed in the past to make such a repair only to see the unit fail a short time later.
Quite often the decision to repair rather than replace is based on timing. No two businesses are alike and variables such as cash flow, market and consumer spending or the overall economy can all influence the decision to hold off on a replacement. Unfortunately, most building owners are not proactive in planning for eventual replacement of these units. Let’s face it – it’s an expensive proposition to change out Roof Top Units or Commercial Boilers. Everyone hopes their equipment will run indefinitely and the expensive capital outlay for new equipment can be avoided for yet another year. But all of that has changed with this new law!
Another huge benefit of changing out old equipment is the advances in technology. The newer replacement equipment is so much more efficient and the designs have been engineered for greater performance resulting in significantly more comfort for occupants. This results in happier customer, employees and tenants, easier lease renewals and longer-term leases.
Here’s what we can predict as a result of this new law: businesses across the country will soon realize the benefits and savings. As a result, demand will increase nationally and along with it, so will the prices for equipment. It is natural to expect that manufacturing will at some point have to increase productivity to keep up with demand and expected wait-times for ordered products will increase. There is a very real likelihood of extended down-times while waiting for the arrival of new equipment when old units fail unexpectedly. While this sounds like a doom and gloom forecast, it really should be perceived as our heartfelt encouragement to take advantage of this amazing opportunity sooner rather than later!
We’re really proud to be able to bring this news to our clients. Give us a call for a free evaluation of your building’s HVAC system. We’ll provide a written condition report and professional advice to help inform and educate you so you can make the very best decision possible.
Thanks for allowing us the privilege of being your Service Provider!