Selling an HVAC Business: How the Fleet, Service Plans and Rollover Equity Are Taxed

The van fleet is where HVAC sellers get surprised

An HVAC company runs on rolling stock: service vans, install trucks, trailers, recovery machines, vacuum pumps and diagnostic gear. Most owners wrote that equipment off fast. For 2026 the Section 179 expensing limit is $2,560,000, reduced dollar for dollar once purchases pass $4,090,000 (Rev. Proc. 2025-32, section 4.24), and 100% bonus depreciation was made permanent for property acquired after January 19, 2025 (IRC 168(k) as amended by P.L. 119-21). A van bought for $70,000 and expensed in year one has a tax basis of zero.

When the business sells, every dollar of price allocated to that van, up to the $70,000 of depreciation taken, is Section 1245 recapture, taxed as ordinary income at rates up to 37% in 2026 (IRC 1(j), Rev. Proc. 2025-32), not at the 20% long-term rate. A 40-van fleet with a fair value of $1.4 million can therefore produce $1.4 million of ordinary income even though the trucks are worth less than what you paid. See depreciation recapture for the general rule.

Why the buyer wants more price on the trucks than you do

In an asset sale (or an S corporation sale with a Section 338(h)(10) election), both sides file Form 8594 and must use the same residual allocation under IRC 1060. A buyer who pays $1.4 million for used vans bought from an unrelated seller can generally deduct it immediately with bonus depreciation, while goodwill is amortized over 15 years under IRC 197. So the buyer's first draft of the allocation schedule usually loads the fleet. Each dollar moved from goodwill to the fleet turns a long-term gain into ordinary income for you.

The fix is negotiating the schedule before the purchase agreement is signed, backed by a fleet appraisal (wholesale value, not replacement cost). Our purchase price allocation page walks through the asset classes.

Maintenance agreements and prepaid service plans

Residential HVAC companies sell annual tune up plans and multi-year service agreements, often paid up front. An accrual-method company that deferred that revenue under the IRC 451(c) deferral method has a liability on its books for visits not yet performed. When the buyer takes over those customers, the seller's obligation ends, and Treas. Reg. 1.451-8(c)(4) requires every advance payment not yet included in income to be included in the year that happens. That income is ordinary, and the buyer normally reduces the price for the visits it must now perform, so you pay tax on money you are effectively handing back.

Two practical points: count the plan liability before you agree to a headline price, and decide whether the buyer pays you for the plan book as part of goodwill (capital) or simply assumes the visits (a price credit). A cash-method seller already paid tax when the plans were sold, so the issue there is only the price credit.

Private equity roll-ups and rollover equity

Many HVAC buyers today are private equity platforms that ask the owner to keep a slice of the value as rollover equity in the new holding company. The tax result depends on what kind of entity you roll into:

• Partnership or LLC holdco: a contribution of property for units is generally deferred under IRC 721, and recapture on the rolled assets is limited to gain actually recognized (IRC 1245(b)(3)). Cash the partnership sends you within two years of the contribution is presumed to be a disguised sale (Treas. Reg. 1.707-3(c)), so the cash and rollover pieces need to be papered as separate parts of one deal.
• Corporate holdco: deferral under IRC 351 generally requires the people contributing property in the same transaction, usually the sponsor and the sellers together, to own at least 80% of the corporation afterward (IRC 368(c)). Otherwise the rollover is taxable at closing even though you received shares, not cash.
• Second bite: rollover equity is deferred, not excluded. The gain comes back when the platform sells, often several years later, at whatever federal and state rates apply then.

In our worked example, rolling 30% into an LLC holdco cuts the 2026 tax from $2,172,286 to $1,540,448, deferring $631,838 until the platform exits.

The license, the owner and personal goodwill

HVAC customers often follow the owner, and in many states the company's mechanical license hangs on one qualifying individual. Arizona, for example, requires a licensed contractor to name a qualifying party (ARS 32-1122) and to notify the Registrar of Contractors immediately of any transfer of 25% or more of its ownership (ARS 32-1151.01). When the relationships and the license sit with you personally, part of the goodwill may be personal goodwill you can sell directly, which matters most for C corporation owners trying to avoid a corporate-level tax. It only holds up if you had no non-compete or employment agreement giving that goodwill to the company. See personal goodwill sale.

Any payment to stay on as the qualifier after closing is compensation, taxed as ordinary income, so keep it at a market rate and separate from the purchase price.

Arizona's after-2011 rule, and other states

Arizona taxes income at a flat 2.5% (2026 Form 140ES) and lets you subtract 25% of net long-term capital gain, but only on assets acquired after December 31, 2011, and only when the acquisition date can be verified (ARS 43-1022). An HVAC company founded in 2008 gets no subtraction on its goodwill; one founded in 2014, like our example, does. Recapture is ordinary income federally and gets no subtraction either. Sellers in other states face very different math: compare our Arizona and California pages, and read moving before a sale if a move is already planned.

Ways HVAC sellers keep more

• Negotiate the fleet value down to wholesale and push the rest to goodwill, consistent with an appraisal (IRC 1060).
• Roll equity into a partnership holdco instead of a corporation where the sponsor allows it (IRC 721).
• Take part of the price on a note with an installment sale. Recapture is still due in year one (IRC 453(i)), so size the down payment to cover it.
• Watch earn-outs tied to maintenance plan renewals; see earn-out for how contingent payments are reported.
• Time the closing across tax years with year-end timing if a January close splits income usefully.

To see the cash sale, rollover and note paths priced side by side for your numbers, get the Big Sale Tax Analysis.

Run your own numbers

Frequently asked questions