Guide to expensing HVAC costs

Heating, ventilation, and air conditioning (HVAC) replacement costs can be significant expenses for businesses that own or lease real estate. Find out about how to distinguish between deductible repairs and more extensive work that must be capitalized.

By Eddie Price and Malik Javed

April 15, 2021

Each year, tax professionals who deal with real estate must evaluate the most recent building expenditures and determine which items should be deducted as a repair expense or capitalized. Of all the systems within a building, none are more affected by advances in technology than the heating, ventilation, and air conditioning (HVAC) system, which relies upon mechanical, electrical, and plumbing components.

Without proper maintenance, the expected life of HVAC components can be drastically reduced, leading to expensive repairs. Tax professionals should be able to understand an HVAC invoice to determine whether the cost may be deducted as a repair expense. Compared to the alternative of depreciating the costs over a 27.5-year life for residential rental real estate or a 39-year life for commercial real estate, an incorrect conclusion may lead to a significant overpayment of current tax liability.

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