HVAC costs can be pricey, but you can expense some of the costs associated with it as a business owner. The main differentiator is to determine if the cost is a capital improvement or a yearly repair expense, according to most Overland Park accounting firms. According to The Tax Advisor, a capital improvement is defined as “an amount paid after a property is placed in service that results in a betterment, adaptation or restoration to the unit of property or building system.” Although there is much more involved in how your HVAC can be expensed, for the purpose of this article, we will provide a quick breakdown of questions a tax accountant in Overland Park might ask.
Betterment
Why did you replace your HVAC, and what did you replace it with? Meaning, was it comparable, or was it an improved system or part?
This gives a tax accountant in Overland Park a better idea of how to categorize the expense. Knowing if it was because of sudden damage or an improvement on the system is essential because it will be claimed differently. These questions and more will need to be addressed with a tax accountant in Overland Park to know what the best category your HVAC repair or replacement will be.
Adaptation
Did you replace or repair it for any reason other than it wasn’t working?
Such as you renovated, enlarged the space, or changed the needs of the space. For example, you rented your building to a restaurant, and then the new renters converted it into apartments. The need for HVAC reconfiguration would much different and would change how you can expense this kind of adaptation to the space and HVAC system.
Restoration
Did your system need to be replaced due to an event such as a fire or tornado?
If there was a replacement of parts, which ones, and how much of the system was replaced?
These two questions will determine if your business’s HVAC system is going to be categorized as a restoration in order to restore the HVAC unit back to the way it was before it began to malfunction.
At Pro 31, an Overland Park accounting firm located just 15 minutes south of Johnson County in Louisburg, we strive to prepare our clients’ small businesses with the information they need to operate efficiently and effectively. We understand it can be overwhelming for small businesses to be up to date on all the various tax laws, and that’s why we are here to help! We provide much-needed assistance for all your financial needs, so give us a call at (913) 837-3131 or contact us online and we will be glad to assist you.
