HR 636 could revise section 179 of the tax code, and would consequently affect the HVAC Industry in a positive way.
The U.S. House of Representatives recently passed HR 636, America’s Small Business Tax Relief Act of 2015, which would revise Section 179 of the tax code to make the expanded expensing limits of certain depreciable assets permanent while adding HVAC equipment to the list for the first time.
The HVACR industry largely supports the bill as several industry organizations — including Heating, Air-conditioning, and Refrigeration Distributors International (HARDI); ACCA; Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA); Air-Conditioning, Heating, and Refrigeration Institute (AHRI); Mechanical Contractors Association of America (MCAA); and Plumbing-Heating-Cooling Contractors Association (PHCC), among others — stated their support in a joint letter sent to members of Congress.
Yet, despite receiving bipartisan support in both chambers of Congress last year as well as support from the HVAC industry and small businesses, the bill must pass the Senate and overcome a veto threat from President Barack Obama to become law.
Introduced by Reps. Pat Tiberi, R-Ohio, and Ron Kind, D-Wisconsin, HR 636 would revise Section 179 of the tax code to make permanent a $500,000 allowance for the expensing of depreciable business property that was first implemented in 2012-2013. The deduction would phase out after investments exceed $2 million and would be adjusted for inflation. Additionally, the exclusion of air conditioning and heating units from the definition of qualified section 179 property would be eliminated.
Charlie McCrudden, senior vice president of government relations, ACCA, said, enacting the legislation would be a “big deal” for the entire supply chain, including contractors. “A lot of [contractors] use Section 179 when they buy trucks,” he explained. “The changes proposed here would make the elevated expensing limits permanent, and it would help any small business by helping them justify purchasing energy-efficient HVAC equipment.”
Industry manufacturers also stand to benefit from the changes to the tax code. Guido Zucconi, assistant vice president of congressional affairs for AHRI, commended Rep. Tiberi and urged Congress and the White House to work together to pass the bill. “Congress and the White House need to come to an understanding quickly for the sake of consumers, manufacturers, and, especially, the national economy,” he said.
The HVACR Fix
The bill’s proposed elimination of the exclusion of air conditioning and heating units from the definition of Section 179 property is of particular interest to industry leaders. The current depreciation schedule for mechanical equipment requires property owners to sustain outdated, inefficient, and failing equipment for more than three decades to fully depreciate their HVAC system.
Updated HVAC systems are an important tool to help increase a business’ viability, productivity, and overall value of a building, Zucconi said. “It [Section 179] is not simply a bonus line in the tax code — it’s an important tool to invest into the viability, productivity, and overall value of these businesses. We strongly support extending 179, increasing the dollar amount, and, especially, allowing the inclusion of HVACR and water heating equipment.”
The Next Step
With the passage of the bill in the House, the ball is now in the U.S. Senate’s court.
Still, even with President Obama issuing a veto threat against it, there is precedent for Senate support for the changes included in HR 636. In November 2014, a bicameral, bipartisan tax extender package was floated by Harry Reid and John Boehner that would have made permanent the expanded 179 expensing limits and included the HVACR fix. But, President Obama threatened a veto over issues unrelated to 179, and the bill died on the vine.