What Is Section 179?
Section 179, or Internal Revenue Code Section 179 is a type of tax deduction that allows small and medium businesses to deduct property or equipment expenses, up to $1 million as of 2018. Essentially, businesses can write off the entire cost of assets purchased for their business in order to significantly lower taxes in the year the equipment is purchased. The purpose of Section 179 is to encourage small and medium business owners to buy equipment and property and invest in themselves.
Does HVAC Equipment Qualify Under Section 179?
As of Jan. 1, 2018, new and used heating, ventilation and air-conditioning property are now qualified as Section 179 expenses by the IRS. Before 2018, HVAC equipment was defined under the law as a capital improvement to a building rather than a business expense and thus, did not qualify for tax breaks. Now, business owners can deduct the full cost of their HVAC equipment the same year the equipment is purchased.
Small to medium business owners and HVAC contractors alike are seeing tremendous business potential with this change in the tax law. Now that businesses can claim HVAC expenses with Section 179, they are more likely to invest in an HVAC purchase and hire a contractor for the job. By the same token, contractors and HVAC business owners can expand their customer base and deduct purchases for their own businesses.
How can HVAC Contractors grow their businesses with Section 179?
Expand Your HVAC Business With Section 179
The updated tax law presents a great opportunity for the HVAC industry as customers will be more likely to invest in new HVAC equipment; however, many businesses are unaware of this opportunity. In fact, 30 percent of small and medium businesses don’t take advantage of the Section 179 deduction at all. It is your role as an HVAC expert to explain the new HVAC tax opportunity to customers. Connect with the decision-makers of the project to demonstrate how an HVAC investment can save their business money.
For example, say a medium-sized business hopes to replace the HVAC systems in several of their locations within the next few years at a total cost of $75,000.
First, let them know about the current state of the Section 179 HVAC deduction. Section 179 eligibility can vary from year to year, so it’s crucial to take advantage of the opportunity while it exists. There is no guarantee that the HVAC equipment qualification will continue in future years. If they wait two or three years to put new HVAC equipment into service, they may miss the opportunity for enormous savings.
Second, quote the job and use the Section 179 calculator to demonstrate the value of their purchase after a deduction. For a $75,000 HVAC equipment and installation purchase, assuming a tax bracket of 35 percent, this business could save up to $26,250 after their deduction. In other words, the true cost of their HVAC system replacements would be only $48,750.
Lastly, fold Section 179 expertise into your marketing efforts, both in print and online. Carry an informative Section 179 handout to each job and weave Section 179 information into your website and online marketing efforts. If you can demonstrate financial literacy regarding HVAC investment and convey the huge savings opportunity to a facility manager, you are much more likely to land the job. It is that simple.
Purchase Equipment for Your Own Business Using Section 179
In addition to expanding your customer base, you can also deduct the cost of purchases for your own business. As an independent contractor or small business owner, you likely have business tools, machinery and even vehicles that you can expense. To claim your Section 179 deductions, follow these steps.
- Document all equipment purchases or rental dates, as well as the dates your equipment was put into service. Assets must be purchased and put into use in the same tax calendar year. In other words, don’t purchase a vehicle before December 31 with the intention of using it the following calendar year. Plan ahead so your equipment is both purchased and put into service between Jan. 1 and Dec. 31.
- Understand Section 179 Qualifying Property. Most equipment and tangible personal property utilized for business qualify for the deduction, including machinery, tools, business vehicles, computers, office furniture and more. Products may be new or used, but they must be purchased for business from the start. In other words, you cannot convert personal equipment to business equipment and then file for the deduction.
Many contractors utilize Section 179 to purchase or lease a vehicle for their business because their work involves transporting heavy equipment and personnel from job to job. You qualify for a vehicle tax break if your car is used for business more than 50 percent of the time.
Vehicles that qualify for a $10,000 deduction
- Classic cargo vans or vehicles with
- a fully-enclosed driver’s compartment/cargo area,
- no seating behind the driver’s seat, and
- no body section protruding more than 30 inches ahead of the leading edge of the windshield.
- Transport vans and other vehicles used specifically to transport people or property for business needs.
- Non-personal use vehicles specifically modified for business, that is, with the company name on the exterior or other vehicle modifications to meet business objectives like delivery.
- Heavy “non-SUV” vehicles and trucks with a cargo area at least six feet in interior length and non-easily accessible from the passenger compartment. Many pickup trucks qualify for this deduction, but beware of “extended cab” pickups as they may not meet the cargo area length requirement.
Vehicles that Qualify for a $25,000 deduction
- Heavy SUVs and other vehicles with
- four wheels, and
- manufacturer’s gross vehicle weight rating (GVWR) between 6,000 and 14,000 lbs.
- Classic cargo vans or vehicles with
- File Form 4562. To take the Section 179 deduction, simply fill out Part 1 of IRS form 4562. If you do not feel confident with the IRS terminology and the instructions for Form 4562, a tax preparer can help advise you.
- Be Prepared for a Tax Audit. In case of a tax audit, be sure to always find ways to prove your vehicle or equipment is used for business purposes. For example, track mileage and expenses using an app such as Stride Tax Mileage Tracking or TripLog 2.0.
Section 179 deductions can encourage business owners to invest in your services as an HVAC contractor. Keep your customers informed on Section 179 and other tax opportunities such as the Geothermal Tax Credit.
Please note, this post is intended to offer ideas and opportunities, not specific tax advice. Please consult with your tax professional(s) concerning your specific situation.