HVAC Retrofits Might Be the Best Kept Secret in the CARES Act

Jul 21, 2020
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If you were thinking about capital spending for your business before coronavirus, what are your plans now? If your pre-pandemic plans involved an HVAC retrofit, you may want to consider moving those plans to the top of your list. The reason is the Coronavirus Aid, Relief, and Economic Security Act – the CARES Act.

The CARES Act was designed to help sustain the economy and businesses through the economic crisis caused by the coronavirus shutdown. And among the many items covered within its 300+ pages was an important provision that makes financing an HVAC retrofit particularly beneficial right now.

In 2017, the Tax Cuts and Jobs Act (TCJA) changed the rules on bonus depreciation – a tax incentive that allows businesses to deduct a large portion of an asset’s upfront costs, rather than write them off over the asset’s useful life. Under the TCJA, several existing property classifications were removed and consolidated under a single classification – “Qualified Improvement Property” (QIP). Within the Act, QIP was rendered ineligible for bonus depreciation.

In March 2020, the CARES Act was signed into law. Under the CARES Act, depreciation for QIP was amended to a 15-year time horizon, now making it eligible for bonus depreciation under IRC 168. These amended rules apply retroactively to property acquired and placed in service after September 27, 2017 and continue ahead through December 31, 2022.

By financing an HVAC retrofit using a capital lease structure this year, the system can be paid for over time, while potentially writing off the entire cost of the system this tax year. "
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QIP is defined as any improvement permanently affixed to an interior area of nonresidential buildings, placed in service after the building’s original construction was completed. While new construction or add-on construction does not qualify for bonus depreciation, QIP does include HVAC systems that are affixed to existing construction.

Why You Should Consider Financing an HVAC Retrofit Now
With the new CARES act, an HVAC retrofit may qualify for bonus depreciation. By financing an HVAC retrofit using a capital lease structure this year, the system can be paid for over time, while potentially writing off the entire cost of the system this tax year.

For buildings that are essential or have a higher traffic capacity – such as medical offices, manufacturing facilities, retail stores and warehouses – a business may want to seriously consider the benefits of an HVAC retrofit in the near future, particularly if the existing system is more than a decade old. An updated system can accommodate new filtration technologies – an especially critical component to reopening some buildings in our current landscape – and lower ongoing maintenance costs.

Financing allows you to align the energy savings with the finance payments. In some cases, these projects can be cash flow positive from day one. The bonus depreciation can even help to create your own “stimulus” by significantly reducing your taxes if you qualify.

If you have questions about financing an HVAC retrofit, reach out to us.

[DISCLOSURE] The information provided in this blog does not constitute tax, accounting or legal advice. Please contact your own independent tax, accounting or legal advisor who considers all relevant aspects of your particular business and products.