how to depreciate HVAC in commercial rental real estate

This may surprise you, but federal tax code no longer requires you to depreciate the HVAC you invest in for your commercial rental property. Instead, taxes allow you to write it off entirely.Those who own commercial buildings will need to purchase commercial HVAC equipment eventually, including cooling, heating and air circulation and purification equipment. All of this can be expensive, but you writing-off the purchase can help you. The rules for doing so are much simpler than they used to be.

What to Do Instead of Depreciating

Old federal rules had commercial HVAC buyers depreciating their new equipment for 39 years! As of January 1, 2018, new tax law amendments were made allowing commercial property owners to deduct the whole cost of their equipment, along with the cost of the labor to install it. You can do both in the year that you purchased your new equipment.

The change was to count most HVAC equipment as a “qualifying property” in the preexisting Section 179 of the federal tax code. Qualifying equipment may include used HVAC systems as well as new ones.

You can write off a total in 2.5 million dollars of equipment, at a 1 million deduction limit, according to the details in Section 179. You should run this by your accountant of course, as every business is different, and you want to use your deductions to their best benefit.

Similarly, it can be wise to plan out the purchase of your commercial HVAC equipment in order to take advantage of these tax benefits. If you approach the maximum write off, you may want to hold off on purchases until the next tax year in order to maximize your deductions.

Things to Ask Your Accountant

When you’re renting out a commercial property you have a lot to do. Hopefully, you have an accountant to handle the finer details of your tax situation. If you do, there are some considerations for writing off HVAC equipment that you should talk to them about:

  • IRS Form 4562: This is the form that your accountant needs to fill out in order to write off your HVAC equipment and other qualifying equipment. Ask your accountant if they are including this form in your tax return.
  • Filing amendments: If you’ve already tried to depreciate your HVAC equipment under the old rules, then you may want to file an amendment. This can allow you to change your return, so you write off the total value of your equipment and the labor to install it at once.

Things to Ask Your HVAC Technician

Your accountant isn’t the only professional who can help you make wiser tax decisions when it comes to your HVAC equipment. Here are some things to ask your technician:

  • Qualified equipment: Your technician can confirm for you if the equipment you’re purchasing is eligible under Section 179. Almost all equipment is, but it is good to check.
  • When should I invest: Your HVAC technician can help you assess when you’ll need to purchase new equipment, and timing this carefully can be advantageous at tax time.