TPR De Minimis Safe Harbor for AC and Furnace

[TL3]

I am getting central AC and furnace each under $2500. Can I use "TPR De Minimis Safe Harbor" to write it off the same year rather than depreciate over 7 years or 25 years? Thank you.

[Coleen3 · Accepted solution]

Yes. 

Each asset that you would normally depreciate over a number of years needs to be $2,500 or less.

The items in the "$20.00 to $50.00 range" would normally be taken as expenses, anyway.  The elections apply to the assets you would normally depreciate, like carpeting, appliances, etc.

De Minimis Safe Harbor Election

This election for items $2,500 or less is called the De Minimis Safe Harbor Election. This election is an option you can take each year that lets you write off items $2,500 or less as expenses instead of assets. Expenses typically reduce your income by a larger amount than depreciating an asset over multiple years does. This means you could get a bigger refund.

If you decide to take this option, a form called De Minimis Safe Harbor Election will show up in your tax return. This election will apply to all your businesses, rental properties or farms.

Here are the rules you need to meet to take this election:

• You don't have an applicable financial statement (most people don't).
• You have a consistent process for how you record expenses and assets.
• You record these items as expenses on your books/records.
• The cost of each item as shown on your receipt is $2,500 or less.

[taxfirst]

Since AC and Furnace are part of HVAC Unit of property, doesn't this 2,500 limit now applies to HVAC unit of property ? In that case, even though AC and Furnace each costs less than 2,500, if it both combined exeeds 2,500, wouldn't it be now not eligible for De Minimis Safe Harbor since at HVAC Unit of property expense is more than 2,500?

[GeorgeM777]

Yes, it appears that you can elect the De Minimis Safe Harbor for the AC unit and the Furnace unit.  To follow-up on the previous Expert's comments, if the AC unit and the Furnace unit were essentially "one unit" and you had one invoice, in an amount greater than $2,500, for the entire HVAC unit, then you would likely not be able to deduct this item using the De Minimis Safe Harbor. 

However, it appears from your question that the AC unit and the Furnace unit are separate items.  Moreover, it appears that you have a separate cost for each.  These facts suggest that you can take advantage of the De Minimis Safe Harbor.  However, it is important to emphasize that there is an anti-abuse rule which prevents a landlord for example from breaking down the cost of a component into each of its individual parts on an invoice. For example, a landlord could not deduct the cost of a new HVAC if the total cost was $4,000 by breaking up that cost into the HVAC’s individual parts on the invoice. 

A good example of a separate AC unit would be AC stand alone units, such as window AC units.  AC units of this type would generally not be part of the structure of the building, and thus, could be depreciated over a seven-year period.