Water heater replacement by itself would not be considered an improvement. It would be depreciated as an Asset unless you made the election to write it off as an expense. It would only be claimed in one place on your return, not both.
If you choose to depreciate it as an Asset, enter it as a Rental Real Estate Property > Residential Rental Real Estate. It will be depreciated over 27.5 years as a component of the home. It would not be considered to be an appliance.
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