Deductions & credits

You must use the straight line depreciation for Residential Rental Real Estate, which is anything that actually attaches to the building itself if adding it as an asset is required.  

The IRS has a Safe Harbor Election for Small Taxpayers.  This option for the HVAC may be eligible for the Safe Harbor Election for Small Taxpayers (does not apply to the concrete balconies or HOA assessment):

• What can I depreciate or expense with the business safe harbor method?
• How do I handle capital improvements and depreciation for my rental?

Here are the rules you need to meet to take this election:

• Your gross receipts, including all your other income, are $10,000,000 or less.
• Your eligible building has an unadjusted basis of $1,000,000 or less.
• The cost of all repairs, maintenance and improvements is less than or equal to the smallest of these limits:
  • 2% of the unadjusted basis of your building or
  • $10,000

 If you find you do qualify for this option and you want to take the full expense in one year for the HVAC system, use the steps below to enter it in your return. 

Open your TurboTax return:

1. When you come to the screen, Did you buy any items that each cost $2,500 or less in 2024? mark the Yes button if applicable and click Continue. This is reserved for assets that are not part of the building referred to as DeMinimis Safe Harbor (DMSH) separate and distinct from the building capital improvements.
2. On the screen Let's see if you qualify to deduct these items as expenses, mark both of the Yes buttons and click Continue.
3. On the Now, let's review each item you bought screen, mark whether all your new assets cost $2500 or less.
4. If you mark that every item cost $2,500 or less, you will be brought to the Rental Summary screen.  You have elected the De Minimis Safe Harbor provision.
5. If you mark that some cost above $2,500, you will be asked Did you make improvements to rental in 2024?
6. If you say Yes, you will be taken through the screens for the Improvements election.
7. If you say No, you will see the screen Do you have any items that aren't covered by your elections?  Proceed through the screens to enter these assets.
8. On the Rental Summary screen go to the Expenses section and click on the Start/Update box.
9. Continue to the Any Other Expenses? screen and enter the description and amount paid for the assets. Click Continue when finished.

If you do use the Safe Harbor Election for Small Taxpayers, be sure to keep all records because these expenses will lower the cost basis of your property when you sell in the future.

IRS definition of Structural components (for your review):

Parts that together form an entire structure, such as a building. The term includes those parts of a building such as walls, partitions, floors, and ceilings, as well as any permanent coverings such as paneling or tiling, windows and doors, and all components of a central air conditioning or heating system including motors, compressors, pipes, and ducts. It also includes plumbing fixtures such as sinks, bathtubs, electrical wiring and lighting fixtures, and other parts that form the structure.