Commercial HVAC systems are a significant investment for any business. They are essential for maintaining a comfortable and productive work environment. As a business owner, it’s important to understand the financial aspects of owning these systems, including how to depreciate them. Depreciation is the process by which a company allocates the cost of an asset over its useful life. At Irish Heat and Air, we understand the importance of managing your assets effectively and are here to help you understand How to Depreciate Commercial Hvac Systems.
Depreciation is an accounting method that allows businesses to allocate the cost of a tangible asset over its useful life. For a commercial HVAC system, the IRS typically allows for a depreciation period of 27.5 years for residential property, and 39 years for non-residential property. This means that each year, a portion of the HVAC system’s cost can be written off as an expense, lowering the company’s taxable income.
The most common method of calculating depreciation for a commercial HVAC system is straight-line depreciation. This involves dividing the initial cost of the system by its estimated useful life. For example, if a system cost $20,000 and has a useful life of 20 years, the annual depreciation would be $1,000. This amount would be deducted from the company’s income each year as an operating expense.
Depreciating your commercial HVAC system can have significant tax advantages. By writing off a portion of the system’s cost each year, you can reduce your business’s taxable income and therefore decrease your tax liability. It’s important to note that recent changes in tax law under the Tax Cuts and Jobs Act now allow for 100% bonus depreciation in the first year for certain types of property, including HVAC systems. This could potentially allow for a significant tax savings in the year the system is purchased and installed.
Understanding and managing the depreciation of your commercial HVAC system is a crucial aspect of business finance. It allows for better financial forecasting and can make a significant difference in your company’s tax liability. At Irish Heat and Air, we’re committed to helping our clients navigate these important financial considerations, ensuring they get the most out of their HVAC investment.