No. If you are expensing the water heater, then you will not need to also list this water heater as an asset under capital improvements.
Please note the following information related to rental renovations (capital improvements) -
For any renovation costs that improve the property and that provides this benefit for more than one year, you will need to capitalize these expenses. You will be able to claim an annual depreciation expense over the life of the capitalized assets.
For renovations made before the rental property was available for rent, you will increase the basis in your rental property by the cost of these renovations and depreciation these costs along with your rental property.
According to the IRS, expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property are considered expenses that must be capitalized.
Click Depreciation of rental property for more information about depreciating a capital improvement.
Related to Rental Assets -
If you are going to report this as an asset, you will need to enter your rental property as an asset under the rental section
To enter this transaction in TurboTax, log into your tax return and type "rental (schedule e)" in the search bar then select "jump to rental (schedule e)", TurboTax will guide you in entering this information
Alternatively, to enter this transaction in TurboTax Online (for TurboTax Online sign-in, click Here) or Desktop, please follow these steps:
- Once you are in your tax return, click on the “Federal Taxes” tab ("Business" tab in TurboTax Home & Business)
- Next click on “Wages & Income” ("Business Income and Expense" in TurboTax Home & Business)
- Next click on “I’ll choose what I work on”
- Scroll down the screen until to come to the section “Rental Properties and Royalties”
- Choose “Rental Properties and Royalties” and select “start’ (or “update” is you have already worked on this section)
Enter your rental property information through the TurboTax guided questions until you come to a screen that is titled, Your "rental property name" rental summary. You will enter your rental property house here under "assets/depreciation" (see screenshot #1)
- Under the asset/depreciation section - select start
- Select "yes" to "Do you have assets for this property that can be depreciated?
- About 3 screens in, you will enter the house as an asset here. This is where your enter all your rental assets (including capital improvements)
- For the rental house (or any capital improvements), you will select "rental real estate property"
- Then for the rental house, select "Residential Rental Real Estate"
- On the next screen, you will enter information about your Rental property asset including:
- Property description - usually street address
- Cost - generally what you paid for the rental plus the cost of any capital improvements
- Cost of Land - If cost, as listed above, includes land, put the total amount of land cost here (land is not a depreciable asset)
- Date purchased or acquired - this is the original of purchase or acquisition of the rental house.
- On the next screen report purchased new or sold in current year and your business use of the property since acquisition.
- You will then get a screen that will confirm prior year deprecation (If asset is over one year old) Just remember that the IRS assumes that you have taken the correct amount of deprecation on your rental asset regardless of if you did or did not) If you change this amount, TurboTax will calculate a new straight line depreciation amount using the new basis information (cost less prior year depreciation) over the assets remaining life.
- Please note that if you change this prior year (accumulated) depreciation amount from that being generated by TurboTax, your current year's depreciation will be calculated based on the new basis information (cost less newly entered accumulated depreciation) over the remaining life of the asset.
- Then you will get an asset summary page showing current year's deprecation. If you select show detail you can review your entry details (screenshot #2)
- You can add additional rental assets on the next screen by selecting "add an asset" (screenshot #3)
Here is a link that can provide you with helpful information related to your rental property
TurboTax - Tips on Real Estate Taxes and Real Property
