if it is a rental property-- (a) to the extent the repair/replacement of the A/C does not increase the value of the property, it is repair; (b) the portion of the repair/replacement that improves the value of the property and or extends the life of an asset would generally be considered improvement and therefore must be depreciated.
For example, in a rented building, the old roof is leaking and needs to be repaired . Roof had remaining life of 5 years. The available roofing material is with 10 year life. You chose to upgrade to 30 year life roofing material and that cost you an extra $3000 --- the whole job of "tear down , haul-away and replace cost your a total of 20,000. In such a scenario, I would use $17,000 ( $20,000 less upgrade cost $3000 ) as repair and add $3000 additional depreciation basis and $3000 to the cost basis of the property.
Does that make sense ?
