On December 16, the Senate approved H.R. 5771 by a 76-16 vote, retroactively extending for 2014 more than 50 business and individual tax incentives that expired at the end of 2013. President Obama is expected to sign the bill into law soon.
Of the more than 50 incentives that now apply for all to 2014, a handful are of special interest to HVACR contractors, including:
- The $500 residential energy tax credit to individuals who install qualified higher efficiency HVAC and hot water equipment in their primary residence. The tax credit is equal to 10% of the installed costs with caps based on each qualified retrofit measure. Click here for more information about the qualifying criteria and the specifics of the tax credit.
- A $2,000 tax credit for home builders that construct qualified new homes meeting certain criteria for energy efficiency.
- The Commercial Building Tax Deduction that allows for an above-the-line deduction for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings. The value of the tax deduction can be as high as $1.80 per square foot, depending on the types of improvements and the overall energy savings.
- The expanded Section 179 small business expensing limitation and phase-out amounts in effect from 2010 to 2013 ($500,000 and $2 million) for qualified property (vehicles, office equipment, machinery, software) placed in service during 2014. These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property also would be extended through 2014.
- A provision allowing an additional first-year deduction of 50 percent “bonus depreciation” to property acquired and placed in service during 2014 (2015 for certain property with a longer production period). This provision would continue to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2014.
- An extension of the exclusion from capital gains tax of 100 percent of small business stock sold by an individual. In order to qualify for this exclusion, the stock must have been acquired at original issue and held for at least five years. Small business is defined as one having assets of less than $50 million.
- An extension of the Work Opportunity Tax Credit that allows a maximum credit of $2,400 to employers who hired employees from one of nine targeted groups, including veterans.
Contractors may want to review their sales records for the past year in order to notify their customers who installed qualified equipment that they may now be eligible for the tax credit. And if you have any pending sales between now and the end of the year, once this does become law, you may be able to use the incentive to upsell a qualifying higher efficiency model.
As a reminder, the tax credit is equal to 10% of the installed cost of the qualified equipment, with limits based on the type of appliance:
Natural gas, propane, or oil furnace or hot water boiler with an annual fuel utilization (AFUE) rate of 95 or greater: $150
Advanced main air circulating fan: $50
Split system air source heat pump that meets or exceeds 15 SEER/12.5 EER/8.5 HSPF: $300
Split system central air conditioner that meets or exceeds 16 SEER and 13 EER: $300
Natural gas, propane, or oil water heater which has either an energy factor of at least 0.82 or a thermal efficiency of at least 90 percent: $300
Electric heat pump water heater with an energy factor (EF) of at least 2.0: $300