We are often asked about whether or not there are tax advantages available to owners of existing buildings who undergo HVAC condenser service treatments that produce cooling systems rated for 10 years of efficiency. The short answer is unfortunately NO, but the long answer is much more pleasant than that. While simple servicing does not open up any tax deductions or incentives, there is the possibility that a complete replacement of HVAC equipment may generate an energy tax advantage through section 179D of the Internal Revenue Code.

In order to qualify for a 179D tax deduction on an HVAC replacement, the new system must show energy and power cost savings of at least 20%. All buildings that are used for primarily commercial and industrial purposes as well as multi-family buildings or dorms of four or more stories are eligible to apply. In order to apply though, a licensed contractor or engineer must certify the documentation backing up the claim to power and cost savings. The bad news is that this incentive expired on December 31st, 2013 for any new HVAC replacement projects. Fortunately, however, any unclaimed tax incentives from HVAC or other energy efficiency upgrades that were completed between January 1st, 2006 and December 31st, 2013, may still qualify and should be reviewed by a skilled tax planner to determine whether or not savings are still available.

There are other possible tax savings available associated with repairs or improvements to tangible property, of which the replacement of an HVAC system is absolutely considered.  The IRS now stipulates that a business may write-off any long-term fixed assets that have been removed from a property instead of continuing to depreciate them. With equipment like HVAC systems, a typical depreciation schedule can last up to 35 years or more so the ability to write that type of unused asset off, especially while capitalizing the new system, is a huge benefit to a company’s bottom line. In order to take advantage of these savings, some changes to accounting methods may be required so consult with a tax professional about creating a clear plan for dealing with any replacement of tangible property.

Capital Review Group (CRG) provides both engineering and tax consultation expertise to guide companies through the regulatory requirements associated with creating long-term tax saving strategies for real property. Contact CRG to begin planning for the 2014 tax returns.