It’s tough staying on top of the fast-changing political landscape, and it’s even more difficult understanding the legalese from new policies and regulations.
So we thought we would try to break down a few things that relate directly to HVAC to keep you informed.
(Before we get too far, it’s worth noting that you should consult with your tax advisor before making any decisions as there may be limitations that apply to your business.)
2018 Tax Reform
You may have heard a lot about the Tax Cuts and Jobs Act (TCJA) back when it was proposed and contested. Eventually, the bill passed, though under a different, much longer name: “The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.”
What you may not have heard are the details of how the bill affects businesses just like yours — and what those implications are on your bottom line.
Section 179 of the IRS tax code allows for business to depreciate qualified assets 100% as an expense in the year of purchase.
In the past, businesses could write off a percentage of the value of new equipment over several years. So when businesses would make investments into themselves, only a part of the money put in could reduce their tax burden.
The TCJA changed a few things about Section 179, like:
- Now includes non-residential HVAC equipment (previously 39-year depreciation)
- Annual limit increased from $500,000 to $1,000,000 for individual pieces of equipment ($2,500,000 annual total)
- Equipment must be placed in service after property itself was placed in service
These changes are only in place for a limited time — phase out beings in 2023. This means that businesses that wish to take advantage of the changes to Section 179 should act quickly, especially because equipment replacement can be a multi-year project depending on the company.
International trade is complicated, and it can be tough to understand exactly how tariffs will impact costs. The tariff that’s affecting the HVAC industry the most right now is on steel.
Basically, American steel manufacturers had a hard time competing with the price of steel from China, so new tariffs have been put in place that would make the price of imported steel the same or more than the price of U.S. steel.
Because so much HVAC equipment requires ventilation and ductwork, the new steel tariffs are affecting the industry by:
- Creating volatility in the market
- Making it harder for HVAC companies to accurately quote jobs
- Having to readily change rates for the cost of steel
- Passing the majority of the hard costs along to the customer
Budgeting for the Future
Whether you’re budgeting for next year or trying to use some spare funds before the end of this year, the best thing you can do is communicate with your team and plan well.
What would your Purchasing Department do if they knew that new equipment could be 100% deducted?
What would your CFO say if you had a solution to plan ahead for the increases in steel costs?
No matter your situation, our team is ready to consult with you on how to take advantage of the financial-related changes in the HVAC space.
Feel free to contact us for a full review of your equipment and an action plan on how your company can leverage these changes.