I added this at the end of the expenses section, under Other Expenses. Is this correct? I was not sure where to put it, repair vs improvement. But TurboTax did not ask me about improvements, only maintenance and repairs.
No, air conditioners are classified as improvements and depreciated over the useful life. See link below, Ch. 2, page 5, Table 1-1
Hello. The question above was where to actually put the "improvement" deduction? Turbo Tax actually asks about expenses, but not improvements. I am facing the same question this year. Please advise. Thank you!
Is a new central air conditioner unit on a rental house depreciated 7 years or 27.5 years
If you installed a window air conditioner, for instance, you could deduct the cost under Rental Expenses.
If you installed a central air conditioning system ,however, that is considered a Capital Improvement and would be depreciated for 27.5 years, the same as the rental property itself.
If this is your situation, here's info on how to add an improvement as a Rental Asset.
Go to Assets/Depreciation from the Rental Summary screen.
You may have the option to expense certain improvements under the Safe Harbor Election for Small Taxpayers. When you begin the Assets/Depreciation section, TurboTax will ask you about this. If you want to deduct the cost fully this year, answer "yes" to include the this election on your return.
If your improvements don't qualify, or you simply wish to depreciate the cost over 27.5 years, continue through the Depreciation interview to set up a new asset.
More detailed information on rental expenses can be found at https://www.irs.gov/taxtopics/tc414.
If this is a window unit then it's classified as equipment or as an appliance and depreciated over 5 years. Otherwise if it's a central A/C unit then it's classified as residential rental real estate (since it becomes "a material part of" the property) and depreciated over 27.5 years.
I could use some accelerated depreciation on a rental property. I've installed new "mini-split" air conditioning units that are somewhere between window and central air. Any chance I can depreciate these over a shorter than 27 year period? Each, including installation, about $7500.
Thanks.
HVAC now qualifies for Section 179 expense deduction; however, in order to take advantage of it your property will have to show a profit. As for depreciation, if they are part of the central HVAC system you have to depreciate them over 27.5 years. If they are stand alone units, more like window AC units (i.e. not a part of the structure of the building) then you can depreciate them over a seven year period.
Do you have a link to documentation where it states that new HVACs can be deducted based on section 179? I talked to a CPA he was not aware.
so you depreciate it over 27.5 years even if the new one might only last 10-15 years. Do you keep depreciating that one even in 10 years you have to replace another one?
On HVACs in nonresidential property qualify. HVAC for residential rentals does not qualify for section 179.
Yes, it is depreciated over 27.5 years. No, you don't keep depreciating it after it is gone. When the old AC is gone, you report that disposition (essentially you sold it for $0) and the undepreciated amount will show up as a loss on Form 4797.
I do not know how the below is dealt with on *commercial* rental real estate, as I've not researched it. But I would expect it to be treated exactly the same as is required for *residential* rental real estate.
There is a different kind of A/C system referred to as "ductless". With this type of system a single compressor unit is located outside of the structure. Then individual cooling units are located inside one or more rooms of the house. You only have about a 2" hold in the wall or ceiling for the refrigerant lines to pass through to the compressor located outside. Hence, no air ducts.
These types of units are generally more economical because each inside unit has it's own thermostat and only operates when activated by the thermostat. These ductless setups are treated exactly the same as any other central A/C setup. The ductless units are not portable and do "in fact" become a physical part of the structure. So they classified as residential rental real estate and depreciated over 27.5 years. Take note that this does *not* qualify for the Special Depreciation Allowance either.
As for the SEC179 deduction, residential rental real estate and it's associated assets do not qualify for that at all.
@bigbunny101 Here's the link
@Carl Your expectation is wrong; it's not treated the same as residential rental real estate.
We changed our broken HVAC SYSYTEM for rental property. We paid 5080 dollar to the AC company. I tried to depriciate for 27 years it comes " 0" DEPRICIATION. Can you please help me. I tried everything. Can I take as a expense whole amount and done wit it.
When you are entering the details for the Asset for depreciation, be sure that you have indicated 100% business use.
The total cost is too high to be able to use the De Minimis Safe Harbor election, you will need to depreciate it as an Asset.
Here https://forum.thetaxbook.com/forum/discussion-forums/main-forum-tax-discussion/25734-heat-pump-dep it says 7 years for replacement HVAC.
@trueboat wrote:Here https://forum.thetaxbook.com/forum/discussion-forums/main-forum-tax-discussion/25734-heat-pump-dep it says 7 years for replacement HVAC.
Did you read that entire link, or just the portions you liked? Most respondents agreed that it is depreciated over 27.5 years. Three people agreed that it is 27.5 years (one of which cited a correct Regulation that applies), only one person said 7 years (and his citation isn't really applicable in this case).
I agree with @AmeliesUncle; clearly a 27.5 year recovery period.
See https://www.irs.gov/publications/p527#en_US_2020_publink1000219255
Since I'm claiming a new HVAC/furnace system as a depreciable improvement, I'll tack onto this similar question rather than start a new one. My question concerns how to categorize the expense.
In the describe this asset section, I'm assuming that I would select Rental Real Estate Property. From there TT asks be to categorize the asset. Would a new HVAC system by further catergorized as Residential Rental Real Estate, or Appliances, carpet, furniture? The only other option is Land improvements. I'm thinking the first, but I could see it being either of the first two.
Thanks.
Enter it as Rental Real Estate. For tax purposes, it is considered as part of the building, so Real Estate is what you should enter it as.
I'm still quite confused about how to depreciate an new central AC...
There seems to be different voices for 7 years or 27.5 years depreciation time. However, I found the depreciation could be 100% in one year(if I understand correctly):
"
The 2013 final "repair regulations" added a safe harbor election for building property held by taxpayers whose average annual gross receipts for the three preceding tax years is $10 million or less. Such taxpayers are considered a "qualifying small taxpayer" for purposes of the regulation (Reg. Sec. 1.263(a)-3(h)).
Under the safe harbor, a qualifying small taxpayer may elect to not apply the improvement rules to an eligible building property if the total amount paid during the tax year for repairs, maintenance, improvements, and similar activities performed on the eligible building does not exceed the lesser of $10,000 or 2 percent of the unadjusted basis of the building (Reg. Sec. 1.263(a)-3(h)(1))."
Can anyone comment on this?
We'd love to help you complete your tax return, but need more information. Can you please clarify your question?
What type of rental? What type of income tax return corporate or personal?
@lilong10 wrote:I'm still quite confused about how to depreciate an new central AC...
There seems to be different voices for 7 years or 27.5 years depreciation time.
if the total amount paid during the tax year for repairs, maintenance, improvements, and similar activities performed on the eligible building does not exceed the lesser of $10,000 or 2 percent of the unadjusted basis of the building (Reg. Sec. 1.263(a)-3(h)(1))."
It is depreciated over 27.5 years for a residential rental.
*IF* your total cost of all of those items qualify to be under those amounts, you can make that election and and deduct it as a repair/maintenance. But just a reminder, (a) you add up the cost of ALL maintenance, repairs, improvements, etc., and (b) you use the LOWER of $10,000 or 2% of the Unadjusted Basis. So if the house cost $200,000, the threshold is $4000.