Are HVAC Repairs Capitalized?

Taxes are complicated. Whether they are personal taxes or taxes that you pay for your business, it’s always a complex web to make sure you are paying what you owe, but not any more than is legally required. Spending money on your property is one of those areas where the tax waters can get murky, as sometimes you’ll be able to take that money and deduct it as an expense, while other times, it will require you to record it as a capital improvement. So, which one is it when it comes to HVAC repairs?

No matter how your taxes play out, one thing is for sure – you should always work with a trusted HVAC contractor when anything needs to be done on your property. Berico has an expert team with the experience needed to handle any heating and cooling projects, so get in touch today to learn more.

The Answer – It Depends

You probably aren’t surprised to learn that the answer to a tax-related question is that “it depends”. That always seems to be the case with tax issues, and it is the case here. Ultimately, it will depend on what exactly is being done to your HVAC system. Some types of work conducted on the system will usually be accounted for as expenses, while other costs will be capitalized.

As a starting point, you can think of ongoing maintenance to keep the current system running properly as an operating expense. Most likely, these expenses will just be deducted from the income statement in the period that they occurred. For example, if you bring in Berico to complete a routine inspection of the system, or to replace the filters and address any minor issues that have developed through routine operation, those are all likely to be operational expenses.

Shifting to Capital Expenditures

It’s typically when the costs become greater and the work becomes more notable that you will start to think about your HVAC costs moving over into capitalization instead. This is when you have done something to significantly upgrade the HVAC system or made an improvement that is going to allow you to continue to use the system for a much longer time to come. Adding some equipment to the existing system in a way that enhances its performance or gives you a reason to think you can keep using this system for a lot longer, might allow you to use capitalization in accounting.

Always Get the Right Help

These decisions should not be made without the help of a qualified accountant. You want to make sure your financial professionals are involved in such important choices so you can get it right the first time and not run into any trouble later. For a relatively large business, establishing policies for what is expensed and what is capitalized will help to streamline the process and add consistency.

You shouldn’t let tax concerns slow you down when needing A/C repairs in the middle of a hot Greensboro summer. Simply get in touch with Berico today to have the work completed promptly.