HVAC Contractors Staying Cool with the Help of R&D Tax Credits

HVAC Contractors Staying Cool with the Help of R&D Tax Credits

Posted by Mark Pessolano on 05.08.18

The economy is growing, which means the heat is on for all HVAC contractors residentially and commercially across the United States. With the economic growth comes commercial business growth as well as housing, both of which need heating and air conditioning units. Contractors in the heating, ventilation and air conditioning (HVAC) industry are constantly striving to improve new processes and products to keep up with technology and architectural trends, as well as their competition. Does your HVAC company resolve technological challenges through the innovative use of products and processes? For example, a client hiring an HVAC contractor may have a need to develop and deploy technologies that can substantially reduce their energy consumption. The contractor must then begin researching their current processes and then begin developing better more cost effective products or processes along the way. These everyday developmental activities HVAC contractors are performing are deemed pertinent R&D. The research and development tax credit program can provide a worthwhile incentive to HVAC contractors once qualified. The R&D tax credit was originally enacted in 1981, with the intent to stimulate the economy of the United States. The credit is an incentive for businesses of all sizes to invest in research and development activities to increase technological growth and competitiveness. This credit was made permanent in 2015, offering ongoing incentives for R&D investment and should be utilized if available.

Most contractors in the construction industries, including HVAC companies, don’t know that their day to day activities can qualify them for federal, and in some cases state, R&D tax credits.  HVAC contractors that provide design and build services, those that use new and innovative techniques, and those using engineers for design and build services can qualify for the R&D tax credit.

The activities and associated expenditures of a company can qualify for the R&D tax credit if the activities meet the four-part test established by the IRS:

  1. Qualified Purpose – The purpose of the research must be to create a new or improved product, process, or formulation, resulting in increased performance, function, reliability or quality.
  2. Technological in Nature – The research must rely on the hard sciences, such as engineering, physics, chemistry, biology or computer science.
  3. Process of Experimentation – Experimentation can be demonstrated through test batches, simulations, systematic trial and error, or other methods of evaluating alternatives to achieve a desired result.
  4. Elimination of Uncertainty – Activities must overcome some unknowns, such as uncertainty as to capability, optimal design, or optimal methodology. 

Request a free assessment to determine qualifying R&D tax credit eligibility.

Listed are examples of the types of HVAC activities and projects most likely to contain qualified research:

  • Improving overall process to increase efficiencies
  • Pre-construction planning
  • Testing mechanical system performance
  • Conducting building information modeling (BIM) for coordination with various systems
  • Value engineering
  • Developing means, methods and fabrication techniques for sheet metal
  • Improving installation means and methods for alternative components and materials
  • Designing systems for better airflow and energy efficiency
  • Designing electrical systems for efficient power usage
  • Water drainage and management
  • Designing systems for better air filtration and humidity

Many of the activities conducted by HVAC companies qualify for the R&D tax credits, and the HVAC companies conducting these qualified activities can benefit greatly from these tax incentives. Tax Point Advisors currently partners with some of the most forward-thinking companies in the industry, and we’re eagerly looking to help additional companies take full advantage of the available credits in the most effective way. Tax Point Advisors provides R&D tax credit study services and other specialty tax services to CPA firms and their clients throughout the U.S. To learn more about R&D tax credits from the experts at Tax Point Advisors, please call us at (800) 260-4138 or please leave us a message below.


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