What you need to do is amend your 2018 tax return and remove the SEC179 deduction for the water heater. While you are now aware that "residential" rental real estate property and most associated assets are not eligible for SEC179, they are eligible for the 50% special depreciation allowance. That allows you to depreciate up to 50% of the cost in the first year. So I would recommend you change it from a SEC179 deduction to the 50% special depreciation allowance if you want.
Just be aware that any way you go will not make one single penny of difference to your 2018 tax liability. Normally, you would not amend a tax return if it made no difference to your tax liability. But in this case you have done something that is not allowed by law by taking the SEC179 deduction. So that's the primary reason you need to amend. Some additional notes:
Some folks think a hot water heater can be expensed under the de-minimus safe harbor act. While this is true for a refrigerator, it's not true for a hot water heater. The refrigerator can be expensed under the safe harbor act because it does not become "a physical part of" the structure. Howver, a hot water heater doesn't qualify for the safe harbor becuase it does become "a physical part of" the structure when it's attached to the plumbing system of the structure. For that reason it's classified as residential rental real estate and gets depreciated over 27.5 years. It's not classified as equipment that gets depreciated over 5 or 7 years. Seems weird because in my book, a hot water heater is equipment, just like a refrigerator is.
Equipment is items used in any business to generate income. For example, a retail store has shelving, cash registers, and display stands. All of these items are equipment and all of these items are used to generate income. When the store is closed or sold all of that equipment can be physically removed from the building without affecting the value of that building or the land it sits on.
So while one may think of a hot water heater as equipment, the fact is you can not remove it from the structure without affecting the value of that structure. So that's why a hot water heater is classified as residential rental real estate and depreciated over 27.5 years the same as the structure is.
Some folks thinks it helps on the tax front if they break things down and list all appliances as separate assets so they can depreciate them faster. They're wrong on several fronts.
First, rental property practically always operates at a loss every single year. When you add the depreciation you're required to take on the property itself, to the expenses of mortgage interest, property taxes and insurance, those items alone will exceed the total rental income for the year. Add to that the other allowed expenses (repairs, maintenance, etc.) and you're practically guaranteed to operate at a loss every year.
Once your deductible rental items get your taxable rental income to zero (and it will) any remaining losses are just carried forward to the next year. With each passing year your losses continue to increase and get carried forward.
Second, when you sell rental property you are required by law to recapture all prior depreciation taken (or the depreciation you should have taken) and pay taxes on it. That recaptured depreciation gets added to your AGI and has the potential to bump you into the next higher tax bracket.
In addition to the above, many locales and a few states impose what is commonly referred to as a tangible property tax and any and all equipment used in the production of income. So if you think listing those kitchen appliances as separate assets will save you money, think again. The money you think you save each year, you end up paying to a lower level taxing authority in the form of a tangible property tax "every single year" that asset is in service.
Lets say your local county imposes a tangible property tax. YOu can probably get away with not reporting it and paying it to the county each year. However, in the tax year you sell the property you have to record that sale in your local county courthouse. Now you're caught. Not only are you going to pay all the back taxes on that intangible property, you'll probably pay a penalty or fine too. Don't think you can with hold your payment either. The county will not record the sale of your property until after you have paid all that stuff.
