@john-luoma wrote:
thanks for the reply.
To clarify, I am a landlord. The water heater was purchased 12/30/2024. A couple more questions on this....
1. How do I classify the water heater in the asset section? There are many options and its not clear how to add this to the asset list. Also, one of the options is to take the full deduction now. Is this a good option? Water heaters typically last 10-15 years. What depreciation option should I use? Certainly not 27.5 years, right?
I'm not super knowledgeable on this, but I can add some thoughts.
@AmeliesUncle @Hal_Al @rjs
There are two safe harbors for small businesses, if you qualify for one of them, you can deduct the entire cost as an expense rather than depreciate it as an asset, then you don't have to recapture depreciation if you sell. The simple safe harbor allows you expense an item under $2500. If it is more than $2500 but less than $10,000, you can look at the Safe Harbor for Repairs and Improvements. Turbotax should offer these safe harbors if you are eligible.
https://www.nolo.com/legal-encyclopedia/small-taxpayer-safe-harbor-for-repairs-improvements.html
If you list the property as an asset, I believe you are stuck with the 27.5 year depreciation. However, if you kept the house and the heater needed to be replaced early, you roll up the remaining depreciation at that time.
Generally, the only reason you would not take the expense is if it creates a loss that you can't deduct, that's a time when you might get more benefit over time by taking depreciation. But you still have to recapture depreciation, so I think the safe harbor expense will be better for most landlords.
