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forthill
New Member

Rental property furnace replacement cost limits

I have a small cottage on my main residence property that I am renting.  The heating system burner/heat exchanger is already over 25 years old and past it's useful life.  It is also leaking water from an expansion valve.  If the furnace breaks down and needs replacement is it considered a repair or capital improvement necessitating depreciation?  The cost of a new unit is probably about $2000

 

Thanks,

forthill

2 Replies
Carl
Level 15

Rental property furnace replacement cost limits

It's a capital improvement hands down. So it has to be depreciated over

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

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tagteam
Level 15

Rental property furnace replacement cost limits

You can most likely expense the unit using the de minimis safe harbor election.

 

Further, there is safe harbor election for small taxpayers.

 

See https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations

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