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how to a enter in a new sewer line and furnace on a rental

I have a single-family home that I 100% rent out. last year I spent $4,000 on a new furnace, and  $4,200 on a new sewer line.  Since these are each over $2,500 I was told they count as a "capital improvement."  I'm trying to enter this into turbo tax and don't see capital improvement. I DO see "Rental Asset" that sounds similar.  So I click on that and then I have 3 categories of rental assets to choose from: 

(1) Residential Rental Real Estate assets

(2) Appliances, Carpet, Furniture

(3) Land Improvements

 

So I just picked (2) Appliances, Carpet, Furniture. And then it depreciated the cost over 5 years. 

 

did I categorize that correctly? 

 

Also I'm OK with depreciating it over 5years, but when I did a google search asking about how many years to depreciate a furnace and sewer line, and it said it was more than 5 years. But I don't see how to change the number of years. 

 

 

 

 

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7 Replies
Carl
Level 15

how to a enter in a new sewer line and furnace on a rental

The sewer line replacement costs is classified as a land improvement and depreciated over 15 years under the MACRS GDS depreciation schedule. See IRS Pub 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf on page 97, item 00.3 - Land Improvements.

The furnace, since it becomes "a physical part of" the structure, is classified as Residential Rental Real Estate and depreciated over 27.5 years. See https://www.irs.gov/pub/irs-pdf/p946.pdf on page 108 middle column, section "Structural Components".

 

 

TomK2023
Employee Tax Expert

how to a enter in a new sewer line and furnace on a rental

The new furnace and sewer line should both be classified as Residential Rental Real Estate Assets, and depreciated over 27.5 and 15 years, respectively.

 

IRS Pub 527 - Residential Rental Property (page 9)

 

IRS Pub. 946 - How to Depreciate Property (page 97)

 

@MikeMa 

 

[Edited 1/19/24 | 12:05PM]

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Carl
Level 15

how to a enter in a new sewer line and furnace on a rental

@TomK2023 There is a difference between "water pipes" and "sewer line". Page 97 of Pub 946 clearly states "sewer lines" in section 00.3 on that page as classified as a land improvement and depreciated over 15 years under MACRS GDS.

 

TomK2023
Employee Tax Expert

how to a enter in a new sewer line and furnace on a rental

Thank you Carl.  If have re-edited my response to reflect the 15 year depreciation for the new sewer line installation.

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how to a enter in a new sewer line and furnace on a rental

The sewer line can be viewed both ways; as a "land improvement" or as structural component relating to the operation or maintenance of a building, (Section 1.48-1(e)(2)).

 

See https://www.law.cornell.edu/cfr/text/26/1.48-1

 

It could be argued that a line (hookup) from the building to the municipal sewer is essential to the operation of the structure. Further, typical land improvements include sidewalks, driveways, roads, fences, landscaping, and the like. In short, this issue is subject to debate.

 

Carl
Level 15

how to a enter in a new sewer line and furnace on a rental

@tagteam I'm just not willing to get into any arguments with the IRS as most likely I would lose. 🙂

 

how to a enter in a new sewer line and furnace on a rental

@Carl I was merely pointing out that the issue is debatable, nothing more. Further, anyone not willing to argue with the IRS should take a conservative approach, and here that would be a 27.5-year recovery period.

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