Added a new air conditioner to a rental property

[trueboat]

Here https://forum.thetaxbook.com/forum/discussion-forums/main-forum-tax-discussion/25734-heat-pump-dep it says 7 years for replacement HVAC.

[AmeliesUncle]

@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.

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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).

[tagteam]

I agree with @AmeliesUncle; clearly a 27.5 year recovery period.

See https://www.irs.gov/publications/p527#en_US_2020_publink1000219255

[bfollowell]

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.

[AmeliesUncle]

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.

[bfollowell]

Perfect! That's what I Was leaning towards.

Thanks you.

[lilong10]

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?

[Cynthiad66]

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

[AmeliesUncle]

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@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))."

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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.

[lilong10]

The rental property is a condo as residential unit (about $500k in value 2022). It's for personal tax return. Thanks!

[lilong10]

Thanks alot! It sounds good and I think my rental property fits this category. It market value is about $500k, so $10,000 or 2% is about the same thing. 

[AmeliesUncle]

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@lilong10 wrote:

 (about $500k in value 2022).

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No, not the current market value.  The Basis.  The Basis is usually the LOWER of (a) the cost or (b) the Fair Market Value when it was converted to a rental.