Section 179 deduction: Are HVAC purchases included? [2023 tax updates]
Are you a property owner or tenant who is considering purchasing HVAC equipment to modernize your commercial building and work toward corporate sustainability? If so, you should be aware of the Section 179 deduction for HVAC equipment purchases and energy efficiency improvements for increasing environmental sustainability.
Significant tax savings exist for small and medium-sized businesses; as a result, you may want to take the incentive to upgrade equipment. This will also help with environmental sustainability in your ESG reporting and answering sustainability audit questions.
Learn more about the Section 179 deduction for commercial HVAC equipment in this post.
First off: What is the Section 179 deduction?
We will go to the Section 179 deduction from Investopedia:
The Section 179 deduction can be taken if the piece of equipment is purchased or financed and the full amount of the purchase price is eligible for the deduction.
Your three main bullet points regarding this, for business equipment and business purposes:
- Section 179 of the IRC allows businesses to take an immediate deduction for business expenses related to depreciable assets such as equipment, vehicles, and software.
- This allows businesses to lower their current-year tax liability rather than capitalizing an asset and depreciating it over time in future tax years.
- Section 179 is limited to a maximum deduction of $1,080,000 and a value of property purchased to $2,700,000 for the year 2022.
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Do HVAC units qualify for Section 179?
In short, yes; HVAC units qualify for a Section 179 reduction per tax code.
In December 2017, Congress passed major tax reform, known as the Tax Cuts and Jobs Act (TCJA), which went into effect on Jan. 1, 2018.
The TCJA brought new changes for depreciating and expensing, including an update that makes HVAC equipment purchases a qualifying property in the Section 179 deduction.
Before Jan. 1, 2018, HVAC equipment was considered a capital improvement, instead of a business expense.
That tax code shift had a solid impact on small business owners, equipment purchased, the taxable income of those in HVAC/R, and the entire cost of refrigerant and HVAC acquisition. The tax deduction, which is typically contextualized in terms of passenger vehicles (honestly), alleviated some of the tax burden within the HVAC community, boosting a bit of net income in the process. We’re grateful for that, and we know some of our small business clients are as well.
What does the Section 179 deduction look like for commercial HVAC equipment?
In 2021, businesses can deduct the full price of qualified HVAC equipment purchases, up to $1,050,000. There’s a total equipment purchase limit of $2,620,000.
- 2021 deduction limit: $1,050,000
- 2021 spending cap: $2,620,000
- Bonus depreciation (on both new and used equipment): 100%
This video, from Beacon Funding, has some good context on the IRS tax code picture for small businesses and beyond in 2022 and 2023 around Section 179 depreciation and deduction:
In 2023, the Section 179 deduction limit has been raised to $1,160,000 (an increase of $80,000 from 2022). This means your business can now deduct the entire cost of qualified equipment up to a total equipment purchase limit of $2.8 million.
This can enable businesses to buy the equipment — HVAC for our purposes, but also office equipment if that’s what you need — they need to reduce their environmental footprint sooner. Prior to this update, you would have to depreciate the equipment over 39 years; getting a little amount back over a longer period of time. The purchase price of assets depreciated over four decades feels tough to stomach for business purposes; the evolution of Section 179 feels better for taxable income and general quality of life for business owners.
This tax break obviously helps businesses replace their old equipment and upgrade to better technology.
“This tax break can help businesses replace their old equipment and upgrade to more efficient equipment.” —Ted Atwood, Chief Refrigerant Geek
There’s been a trend recently that points to property owners and managers making retrofits with new HVAC systems to appease occupants and make them feel safer and healthier — which makes awareness of the Section 179 deduction for commercial HVAC equipment purchases crucial.
With so many changes happening in the HVACR industry, including as it relates to tax code, this Section 179 deduction is welcomed widely by stakeholders—from the commercial contractor to the building owner.
What should you be tracking as regards Section 179?
Do you need a better way to track new equipment installations, retrofits, and decommissions? Here are three ways Trakref can help you do so now:
- When an install happens (perhaps you’re replacing a broken system), Trakref refrigerant compliance management software will notify you.
- When the install occurs, Trakref will make sure you capture all the needed data.
- When removing a system, Trakref will alert you and document the removal per regulatory requirements and industry best practices.
In fact, all of the activity and work performed by your team will be ready for you to use when filing. Yes, the Refrigerant Geeks at Trakref have got your back; we simplify HVAC/R and refrigerant compliance for you.
We’re a software corporation that has been in the regulatory compliance software and environmental compliance calendar software space for years. As an environmental software provider, we make sure our refrigerant capabilities will keep you in compliance with new regulations.
While we’re not accountants, Trakref can also help with Scope 1 emissions management and much more around HVAC/R and refrigerant in general
Many companies are still just catching up on understanding the significant carbon emissions caused by refrigerants — and, again, what refrigerant charge even is.
Scope 1 emissions reporting, ESG reporting in general, or social cause reporting are becoming more top-of-mind for companies, but it’s not fully there yet. Companies don’t know how to do it properly, and it falls into poorly-managed, poorly-contextualized processes that use old tech.
Ideally, what you want from any refrigerant management and Scope 1 emission reporting tool is:
- A way to see and understand the data
- Task management
- Some level of automation
- Clear reporting capabilities
There are more bells and whistles that help out, but those are the core things you need to effectively report Scope 1 emissions.
Here’s what Trakref can do:
Refrigerant tracking: Trakref provides a centralized platform for tracking refrigerant use across an organization. This includes tracking the amount of refrigerant used, refrigerant charge, air conditioning, liquid refrigerant, the location of each refrigerant-containing device, and the dates of any maintenance or service activities. By tracking refrigerant use in this way, Trakref can help organizations identify opportunities to reduce their refrigerant use and associated emissions. Think of us as your refrigerant charge BFF. We handle everything about the terms and conditions associated with refrigerant charge. We know all the regulations and protocols that are impacting refrigerant charge calculations in each area, and we bake that into our systems so that you don’t need to worry about it. You can focus on operations.
Emissions calculations: Trakref can calculate an organization’s refrigerant-related emissions based on the type and amount of refrigerant used, as well as other factors such as equipment age and efficiency. These emissions can then be reported as part of the organization’s overall Scope 1 emissions.
Leak detection: Refrigerant leaks are a common source of emissions in many organizations. Trakref can help organizations detect and address refrigerant leaks quickly, reducing the amount of emissions released into the atmosphere.
Compliance tracking: Trakref can help organizations stay compliant with regulations related to refrigerant use and emissions, such as the Environmental Protection Agency’s (EPA) Refrigerant Management Program. By staying compliant with these regulations, organizations can avoid fines and penalties and demonstrate their commitment to sustainability and environmental responsibility. You can do this while keeping the air conditioning on, which is going to please your people.
Reporting: Trakref provides a range of reporting capabilities, including reports on refrigerant use, emissions, leak rates, and compliance. These reports can be used to inform decision-making and to demonstrate progress in reducing emissions and improving environmental performance.
Overall, Trakref can be an important tool for organizations looking to manage their Scope 1 emissions related to refrigerant use. By providing a centralized platform for tracking refrigerant use, detecting leaks, and calculating emissions, Trakref can help organizations reduce their environmental impact and meet their ESG goals.
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Managing and developing ESG and EHS content for Trakref since early 2023.