The link to the Tangible Property Regulations - Frequently Asked Questions article is a great explanation of the differences between a repair vs. an improvement vs. a restoration. However, the article omits a discussion of Safe Harbor. See Safe Harbor Election for Small Taxpayers in Tangible Property Regulations - Frequently Asked Questions.
Under Safe harbor, even though replacing a heat pump would normally be considered a restoration of a major component and thus must be capitalized, a typical small taxpayer may elect to not capitalize it and take the full deduction in the current year. That said, you could still capitalize it if you want.
From the IRS Tangible Property Regulations - Frequently Asked Questions:
Safe Harbor Election for Small Taxpayers
You are not required to capitalize as an improvement, and therefore may be permitted to deduct, the costs of work performed on owned or leased buildings, e.g., repairs, maintenance, improvements or similar costs, that fall into the safe harbor election for small taxpayers. The requirements of the safe harbor election for small taxpayers are:
- Average annual gross receipts of $10 million or less; and
- Owns or leases building property with an unadjusted basis of less than $1 million or less; and
- The total amount paid during the taxable year for repairs, maintenance, improvements, or similar activities performed on such building property doesn't exceed the lesser of-
- Two percent of the unadjusted basis of the eligible building property; or
- $10,000 (for questions about how to calculate the unadjusted basis, refer to "Figuring the Unadjusted Basis of Your Property" in Publication 946
- You make the election to use the safe harbor for each taxable year in which qualifying amounts are incurred.
