Assuming you're dealing with rental property, since the water heater costs you less than $2,500, you are allowed to expense it and be done with it. Appliances are deprecated over 5 years. So for a $700 water heater, depreciating $125 a year will barely make a dent in your tax liability. A whole dollar each year if you're lucky maybe. Just expense it and be done with it. The IRS says you can do this under De-minimus Safe Harbor.
